Mutual fund (MF) investors got some respite on Friday after the markets staged a strong recovery. Over the past month, major equity categories had seen sharp declines of 17-20 per cent as the markets reeled from the coronavirus pandemic.
Large-cap schemes have seen one-month negative returns of 20 per cent. Mid- and small-cap schemes have seen over 17 per cent hit on net asset values (NAVs) in the same period. The above return scorecard is likely to improve after the markets logged their largest-ever single-day recovery on Friday, after falling as much as 10.8 per cent intraday. The Nifty closed 3.8 per cent higher.
Investors’ sentiment, however, has turned weak amid the recent selloff. "Client queries have been on the surge. Investors want to know whether they should redeem their investments or stay the course," said an MF distributor.
Industry players are concerned that continued volatility in the markets may significantly hurt equity flows. In February, the industry received Rs 10,795 crore in equity flows, a 37 per cent jump over the previous month.
Meanwhile, systematic investment plans or SIPs — which have been giving cushion to the industry — saw a marginal dip at Rs 8,513 crore in February.
Short-term returns of equity schemes have taken a sharp beating in the last few days, after the market saw a 2,000-point crash on March 9.
Until then, large-cap schemes had given negative returns of around 8 per cent, while mid- and small-cap schemes were down 7 per cent.
"Weak hands would look to exit their MF portfolios if the market volatility continued. However, investors who stay put and handle the market volatility could make robust returns over the long-term," said Srikanth Matrubai, chief executive officer of SriKavi Wealth.
"The selloff seen in March will truly test the long-term orientation of domestic MF investors. We will have to closely watch if there are any sharp rise in the closure of SIP accounts," said a senior executive of a fund house.
In February, the SIP closure ratio was at 50 per cent. For every two SIP accounts open, there was one request for closure. In February, 1,139,000 SIP accounts were opened, whereas 574,000 were discontinued.
Overall, Rs 3.1 trillion of investor assets coming into the industry is through the SIP mode. This accounts for 11 per cent of the industry’s total assets of Rs 27 trillion.