Equity MFS give 25% returns during lockdown amid market recovery

NEW DELHI: Equity-oriented mutual fund schemes generated returns of about 25 per cent during the lockdown period amid a recovery in broader markets and liquidity infusion by the RBI coupled with the government’s stimulus measures, experts said.

However, some analysts believe this is nothing more than a bear market rally.

Although mutual funds gained from the bounce back from March lows, their longterm returns still look bad, said Vidya Bala, co-founder of Primeinvestor.in. According to data compiled by Morningstar India, all the equity scheme categories — equity linked saving scheme (ELSS), mid-cap, large and mid-cap, large-cap, small-cap, mid-cap and multicap — have given returns in the range of 23-25 per cent between March 25 and June 3.

Individually, large-cap funds have given a return of 25.1 per cent, followed by multi-cap (25 per cent), ELSS as well as large and mid-cap funds (24.9 per cent each), small-cap (24 per cent) and mid-cap (23.2 per cent). Broader markets have recovered 25-30 per cent during the period under review. However, most of the active funds underperformed their respective benchmark indices.

The nationwide lockdown to combat the spread of COVID19 infections started on March 25 and it has been extended by some states till June 30 in the containment zones. Prior to this, all the equity schemes had given negative returns, in the range of (-) 32-37 per cent, since the beginning of the bear market on February 19 to the announcement of lockdown on March 24.

Prateek Mehta, co-founder of Scripbox, attributed the positive return by mutual funds to steps taken by the government and central bankers across the globe over the last 12 weeks. “In India, it seems that the market fall has been broken by the RBI rate cuts, extensive government measures and return of the FPIS in May and June,” he added.

Amit Jain, co-founder and CEO at Ashika Wealth Advisors, said this positive return could be due to stimulus packages announced by governments across the globe. During the period under review, Nifty 50 delivered a return of approximately 21 per cent, while equity mutual funds generated 25 per cent due to combination of factors — liquidity infusion and relaxation of lockdowns across economies — that buoyed investor sentiments, according to Bajaj Capital Research.

“Massive liquidity injections by the RBI in conjunction with the government’s stimulus measures were aimed at bolstering the economy by mitigating the fallout of the pandemic. The measures buttressed the reinstating of risk-on sentiments,” it said.