Equity-oriented mutual fund schemes delivered a negative return of about 25 per cent to investors over the last one month as the broader market witnessed significant downtrend amid coronavirus-triggered recession fears.
The 44-player mutual fund industry is not immune to the economic blowback of COVID-19, and going ahead, small and mid-cap equity schemes will continue to remain under pressure in the short to medium term on account of volatility in the markets, said Krishna Karwa, Senior Research Analyst, at iFAST Financial India.
According to data compiled by Morningstar India, all the equity scheme categories -- equity linked saving scheme (ELSS), mid-cap, large & mid-cap, large-cap, small-cap, mid-cap and multi-cap have given negative return in the range of 25-26 per cent between February 19 and March 18, 2020.
Individually, large and mid-cap funds have given a negative return of 26.63 per cent followed by large-cap (26.58 per cent), ELSS (26.47 per cent), multi-cap (26.45 per cent), small-cap (26.32 per cent) and mid-cap (24.84 per cent). Notably, all the funds fell less than their respective benchmark indices during the bear market.
The benchmark Sensex crashed about 30 per cent during the same period, falling from 41,000 level to 29,000 level, following the coronavirus pandemic, decline in international crude oil price and the Yes Bank fiasco.
"We have seen such falls in the market multiple times before, while pessimism may remain for sometime given the uncertain situation with the spread of the coronavirus. But as we have seen in the past over the long term markets will recover," Morningstar India Director- Manager Research Kaustubh Belapurkar said.
He, further, said that investors should continue to focus on asset allocation and continue with their investment and systematic investment plans (SIPs). If an investor was underallocated to equities as per his risk profile, it would be a good time to start increasing the equity exposure at current low valuations. He advised investors to keep at least 7-10 year investment horizon in mind with a volatile asset class like equities.
Echoing similar views, iFAST Financial India's Karwa said that corrections have made the valuations pretty attractive, and investors should consider going long on small and mid-cap funds.
"Despite witnessing a marked dip in net asset value (NAV) in recent times, large-cap and blue chip funds should be able to bounce back at a faster pace. Quality businesses and industry leaders with superior fundamentals will always command a premium multiple over the rest, and would be the first ones to see investment inflows on major dips, he added. With regard to the debt schemes, Karwa expects stress in the credit markets to persist.
From a defensive standpoint, an investor should focus more on short duration debt funds (typically up to one year) with good liquidity. Those with a higher risk appetite can keep long duration credit risk funds on their radar as well, he added.
"The current market downturn has led to both concerns as well as a sense of potential wealth creation opportunity due to this increased awareness," said Satyen Kothari, Founder & CEO, Cube Wealth.