The correction in the markets has taken a toll on equity portfolios of mutual fund (MF) investors, with such funds losing 11-15 per cent in the first half of the calendar year 2020.
Large-cap funds — the largest equity category — have failed to meet investors’ expectations with negative returns of around 13 per cent over this period.
MF distributors say they have seen investors booking losses and exiting portfolios.
“Investors, who are worried over their cash flows and were chasing returns, are now looking at pulling out their investments,” said Ritesh Sheth, co-founder of Tejas Consultancy.
So far this year, large-cap funds have seen deeper value erosion than mid- and small-caps. The data from Value Research shows that mid-cap funds have declined 9.6 per cent year-to-date (YTD), while small-cap funds have fallen 11.26 per cent.
Though there has been some recovery in recent months, advisors say investors should be cautious.
“Within equity, investors should maintain a calibrated approach. Large-cap funds should be kept at 60 per cent of the overall portfolio, with the remaining exposure in mid- and small-cap funds. Here, too, small-cap exposure should be kept lowest,” said Amol Joshi, founder of Plan Rupee Investment Services.
Experts say market volatility will likely persist as the economic outlook remains uncertain. The India Vix, a volatility gauge, has seen a seven-fold spike in the current calendar year.
Experts say investors should also brace for sharp corrections as corporate earnings are unlikely to improve in the near term.
“June seems to be a washout quarter on a YoY (year-on-year) basis. The September quarter is likely to be weak as well. In December, we could see flat to slightly positive earnings performance. But if lockdown is tightened again, recovery would also get pushed,” said Deepak Jasani, head of retail research at HDFC Securities.
Equity schemes have seen heavy redemptions in the current year — they stood at Rs 62,413 crore from such schemes (data available till May) on a YTD basis.
Rising redemptions can also be gauged from the slowdown in the flows coming through systematic investment plans (SIPs). Since peaking in March, the SIP book has contracted 6 per cent. In May, contributions to MFs through SIPs stood at Rs 8,123 crore.