Mutual funds cushion the impact in a bear market

For years, there have been many debates about the performance of Indian fund. In fact, many investors claim that they have seen a steep fall in the performance of their mutual fund holdings. Such a feeling is accentuated by the constantly running commentary on various communication channels, which make investors panic. When I meet investors, most of them tell me that they have not made money in mutual funds; worse, many feel they have lost money and admit that this was their biggest mistake.

These conversations nudged me to take a close look at the performance of mutual funds. To make it more comprehensive, I have compared the fall in NAV of mutual funds with the fall in stock prices of direct equity from their historic peaks.

Here is a synopsis of the fall in NAV of mutual funds versus the fall in stock prices of top 500 stocks from their historic peak.

Extrapolating from this data, the chances of an over 50% fall in index is over 33%, such a possibility is zero in mutual funds.

Another way to look at the performance of MF schemes and see how the NAV of these funds have fallen from their historic peaks is to compare Nifty Small Cap 100 index with small cap funds. While Nifty Small Cap 100 was at 9580 on January 15, 2018, it fell to 5328 on August 05, 2019, a fall of 44.4%.  Most small cap MF schemes also hit historic high and low NAVs during the same time frame. Here is the table

You can see that the average NAV fall of small cap funds from the historic peak was 29% as against the fall of 44.4% in the Nifty Small Cap 100. Interestingly, not a single small cap fund fell more than its benchmark.

The story of midcap funds is no different. For instance, Nifty Midcap Index fell 28.7% from its peak i.e. between January 23, 2018 and August 05, 2019.

Now let’s look at the fall in NAVs of mid cap funds during the same period.

The average fall in NAV of midcap fund is close to 21% as against 29% of Nifty Midcap Index. Again, no scheme witnessed fall in NAV more than the index.

Other actively managed funds like large cap, large & mid cap, multi cap, value, contra, focus and ELSS funds witnessed average drop of 12% in their NAVs.

Here is the summary of the performance of all actively managed diversified equity MF schemes.

This indicates that the impact of market downfall is less in mutual funds compared to direct stocks. However, most investors see their equity exposure fungible and do not distinguish between direct stocks (where losses has been much deeper and severe) and MFs (where losses has been much less).

Are “Mutual Fund Sahi Hai” for investors? Perhaps Yes!

Vijai Mantri is the Chief Investment Strategist, Mentor and Co-Founder of JRL Money. The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.