When markets are in a fast fall, mutual funds (MF) can’t do anything but underperform.
Redemption pressure could aggravate problems.
MUMBAI: When markets are in a fast fall, mutual funds (MF) can’t do anything but underperform.
Data compiled by DNA Money from May 10 (the day the Sensex and Nifty touched lifetime highs) till May 17 (the date till latest data is available) show, while both, the Sensex and Nifty fell by a little over 3%, only eight of the 157 equity schemes managed to improve their net asset values.
A whopping 72 schemes underperformed the Sensex and 64 underperformed the Nifty.
If Thursday’s fall is taken into account, then the mutual fund performance figure would surely look even more depressing.
The worst performer was SBI Magnum Comma Fund - Growth, whose net asset value (NAV) dived 6.1% during the period. The best performing was DBS Chola Opportunities Fund - Cumulative, whose NAV went up by 1.6%.
When the markets face dips of these magnitude, like they faced Thursday, the Rs 100,000 crore equities mutual fund industry has to grapple with another issue - that of increased redemption pressure from its subscribers.
This, in turn, presents another investment problem for the fund manager: as his investible corpus shrinks, there is less fund to take advantage of the investment opportunity.
“Yes, during such moments there is panic and some money did exit today. During falls like these, people tend to move towards greater cash holding than equity,” said Mugunthan Siva, chief investment officer, Optimix Mutual Fund.
However, there are signs of investors maturing also. Prasad Nalam, chief investment officer, Sundaram Mutual Fund, says on Thursday they had a lot of funds inflow from investors who wished to take advantage of the market bounceback.
Rajiv Shastri, CEO, Sahara Mutual Fund, agrees. “Investors are becoming mature. They realise that you are exiting at the bottom of the market, and miss out on the market bounce back,” he said.
Lately, it has been found that when the markets correct, while foreign institutional investors are net sellers, mutual funds are net buyers.
On May 15, when the Sensex dropped 463 points, mutual funds poured in close to Rs 800 crore. Namal says it is due to the fact that mutual funds are sitting lot of cash, flush from their new fund offerings, and hence corrections like these gives them an opportunity to enter at cheaper valuations.
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