Equity scheme investors see relief on returns but likely to remain cautious

Equity mutual fund (MF) investors are seeing some relief on returns, with large-cap and mid-cap funds surging 13.6 per cent and 12.7 per cent, respectively, in April.

Industry participants, however, say the run-up in market prices may not be enough to improve the sentiment of investors. “More than the markets, concerns over monthly income and cash-flows are on investors’ mind, given the uncertainty surrounding the economy,” said Vidya Bala, co-founder of primeinvestor.in

In the one-year period, the large-cap funds were down 14.06 per cent. The mid-cap funds were down 13.82 per cent and the small-cap funds were down 20.39 per cent during the same period.
 

On Thursday, the Sensex ended 3.05 per cent or 997 points higher on hopes of a breakthrough in drug research to cure the Covid-19-affected patients. Further, the continued stance on liquidity easing by the US Fed kept the markets buoyant.

The markets seem to be climbing the wall of worry, but investors are likely to remain cautious. “Sentiment is unlikely to change in the short term. Some investors, who have come through systematic investment plans or SIPs, have already seen a large chunk of their four- to five-year returns diminish in the recent market sell-off,” said the head of a leading distribution platform.

In March, the SIP closure ratio spiked to 70 per cent, with closure requests crossing the 600,000-mark for the first time in 2019-2020. The number of new registrations also saw a sharp 25 per cent decline, from 1.14 million registrations in February, to 849,000 in March.

The funds are still marginally underperforming the benchmark market indices. In one-month, the Nifty has given returns of 14.67 per cent, whereas large-cap funds have clocked average returns of 13.58 per cent.

“At this juncture, investors can consider rejigging their portfolio. They could exit schemes that have not performed for them over a long period, and even consider reviewing their equity-debt asset allocations,” Bala added.

Experts fear equity flows will slowdown if investors' sentiment doesn’t improve. “So far equity flows are yet to see a significant slowdown because of coronavirus-related factors. However, outflows may pick-up if sentiment remains weak,” said a senior executive of a fund house.

The US Fed on Wednesday had said it would continue its aggressive policy stance till economy starts to revive. Further, US top health advisor Anthony Fauci said remdesivir has a clear-cut positive effect in diminishing recovery time.