Handling negative equity returns

NEGATIVE RETURNS

One-year returns for almost all categories, barring sectoral categories, dipped in the last calendar year. Returns on multicap stood at -7.17%, large and mid-cap at -9.36%, mid-cap at -14.34%. Small-cap funds lost the most at -20.93%, according to Valueresearchonline.com. Large-cap funds lost around -0.34%, according to Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt Ltd. Among sectoral categories, technology had positive returns (18.51%), while the others were negative. Infrastructure had highest negative returns (-20.38%) and banking had the lowest negative returns (-1.89%).

THE REASON

Markets were volatile in 2018 for many reasons. Investors remained unaware about the direction of domestic currency and oil and uncertainties on global front, said Mohanty. This led to a lot of sell-off by the foreign institutional investors. but domestic investors were the saving grace with their buying behaviour, he said. Owing to this, even with low returns, markets were afloat, Mohanty added. If we look at three-year returns, all categories are in the green which means investors may have sold their overbought position. Even five-year returns remain intact, he said, adding that a year where one-year returns have tanked, signal a good buying opportunity.

WAYS TO HANDLE

“It is well known that equities will not give linear returns at a particular point of time,” said Suresh Sadagopan, founder, Ladder7 Financial Advisories. “It’s a flawed assumption that we look at one-year returns because equities have to be viewed from a long-term perspective to achieve long-term goals,” said Mohanty. There is nothing much to be done, except that one can review their portfolio and check for their credibility and do some rejigs, said Sadagopan. A credibility check comes in when your fund is giving returns more or less than the market average. If large-cap market gives a return or -0.2% but your fund gives 12%, you need to check the credibility.