The sharp sell-off in markets is pushing mutual fund (MF) investors to the end of their tether with advisors receiving multiple queries from investors looking to unwind their equity positions even though they are staring at heavy mark-to-market losses on their investments.
According to industry experts, MF investors seem to have run out of patience. "First, investors were waiting for election uncertainty to get over. Then they were waiting for Budget. However, sell-off from foreign institutional investors (FIIs) post-Budget has turned into a major overhang, which has weighed on the investors' returns," said Kaustubh Belapurkar, director (fund research) at Morningstar Investment.
Experts add that the equity flows are likely to trend lower as risk-aversion will trigger flight of investor money towards safer and less volatile alternatives. "We are getting queries from investors on whether they should move their investments to liquid funds," said Amol Joshi, founder of Plan Rupee Investment Services.
On Monday, the Nifty cracked 1.3 per cent, closing at a five-month low. The law and order tensions concerning the Kashmir valley and the escalating trade tensions between the US and China spooked market participants.
Equity flows have been under pressure since the second half of 2018 as the IL&FS crisis sent shockwaves in both equity and debt markets. Between November 2018 and February 2019, equity schemes saw four back-to-back months of slowdown. In March and June, flows posted a strong growth. However, the latter was driven largely by the election outcome.
"There is anger among some of the investors. They had started building positions in equity schemes two-years back and wanted to exit over a short horizon. However, they have not been able to exit. We are trying to urge investors to stay put in markets as we fear if these investors book losses at current levels, they will never return to markets," said Srikanth Maturbai, chief executive officer of SriKavi Wealth.
"In the last few weeks, a typical investor with exposure to equity, debt and balanced schemes, must have borne five-ten per cent impact on the value of his investments. This is after taking into account the market fall from its recent peaks," Joshi added.
A look at the last two-years' performance further underscores the challenging times MF investors have had to endure on their investments.
According to data from Value Research, the mid-cap category has delivered four per cent negative returns over the last two years, while the small-cap category has delivered negative returns of seven per cent over the same period. Meanwhile, the large-cap funds have delivered paltry returns of two per cent.
While investors are looking to trim their equity positions, fund managers feel this could be an opportune time for investors to build fresh positions.
"For the next 3-6 months, investors can look at building up their positions. The divergence between the Nifty and mid- and small-caps is at historical extremes. While it is difficult to spot the bottom, historically broader markets tend to outperform for 18-24 months after such extremes are reached," said Pankaj Tibrewal, fund manager at Kotak MF.
Both the broader market indices -- NSE Midcap 100 and NSE Smallcap 100 -- are trading around two-and-a-half year lows. Since July, midcap index has corrected 12 per cent, while smallcap index has corrected 14 per cent. Lack of earnings recovery, selling pressure driven by FIIs and both domestic and global concerns have hurt the broader markets.