For the two crore mutual fund investors in the country, the ride has been rough in the past two months. New investors who shopped in the mutual funds (MFs) mart are licking their wounds with their portfolios in red. Even, rupee-cost averaging through systematic investment plans (SIPs) have not helped. As the stock market declined, mid and small cap stocks felt an agonizing pain. Nine months into the calendar year 2019, investors should have a fair sense of how their funds have performed against the category average and the benchmark. No matter how bad the short-term picture looks - investors must remember that their long-term financial goals still need to be achieved. A down cycle in markets is as relevant as an up cycle. Let us review the performance of open-ended equity funds.
At Rs 1.41 lakh crore managed across 34 schemes from different fund-houses, the multi-cap equity funds are the biggest category in terms of investor assets. Multi-cap funds have full freedom in terms of market cap allocation i.e. they do not have to adhere to norms specifying how much to invest in large cap, mid-cap and small-cap stocks. They can invest in all of them in whichever ratio they want to.
The average loss for multi-cap equity funds in 2019 calendar year to date is about 2%. The category average is lower than the loss of 2.7% put up by benchmark BSE 500 in the same time. If your fund gave average returns, it is still beating the overall market i.e. BSE 500. From a three-year perspective, the category return average of multi-cap funds at 5.4% is lower than 7% of BSE 500. The past 18 months had been challenging. Multi-cap funds as a category have suffered quite a bit in the three year period.
From a SIP investor perspective, who puts in money every month, the above point to point returns is not relevant. Let us see how multi-cap funds have done in terms of SIP returns. Since the overall market has declined in the last 8-9 months as well as 12 months, SIP returns mirror this downfall. The best performing multi-cap funds, based on SIP investments in this period, include IIFL Focussed Equity Fund, Axis Multicap Fund, JM Multicap Fund, Parag Parikh Long Term Equity Fund and DSP Equity Fund. The worst performing multi-cap schemes include IDFC Focused Equity Fund, Reliance Multi Cap Fund, Taurus Starshare (Multi Cap) Fund, HSBC Multi Cap Fund and Principal Multi Cap Growth Fund.
Large cap funds
With around Rs 1.39 lakh crore of investor assets, the large cap equity funds are the second biggest category. The large cap equity funds are broadly divided into exchange traded funds and index funds in one group, and actively managed funds in the other basket. Large cap funds have to invest a minimum 80% money in large cap companies (the top 100 companies by market vaue).
In the 2019 calendar Year To Date (YTD) period, large cap funds are the least hit among most equity fund categories.
The average loss of large cap funds is about 0.7%, which is lower than the BSE 100 TRI benchmark's loss of 0.85%. Unfortunately, the category average returns over three, five and 10 year period have been all lower than the BSE 100 TRI benchmark. So, it can be assumed that large cap funds over longer periods are struggling to beat the benchmarks.
From a SIP investor perspective, SIP returns in the last one year have been varied depending on the fund. In this period, SIP investments in large cap funds like Axis Bluechip Fund, BNP Paribas Large Cap Fund, Reliance ETF Shariah BeES, LIC MF Large Cap Fund and Sundaram Select Focus Fund, saw marginally positive to 6% returns. But regular SIP investments in funds like Principal Nifty 100 Equal Weight Fund, Reliance Large Cap Fund, Sundaram Nifty 100 Weight Fund, DSP Equal Nifty 50 Fund, and Bharat 22 ETF, saw 13-16% losses in last 12 months.
ELSS (tax-saving) funds
ELSS category manages over Rs 91,000 crore, the third most popular category among equity schemes. The tax saving advantage ensures that investors regularly park their money in these schemes. These are multi-cap funds essentially, but your investment carries a three-year lock-in.
In 2019 YTD period, the category average of ELSS funds is 3.2% loss versus benchmark's 1.6% loss. Clearly, many ELSS schemes have under-performed the benchmark i.e. BSE 200 TRI. This has affected the ELSS category's three and five year performance as well. It is only in the 10-year period that ELSS category average looks healthy and better than the benchmark.
From a SIP investor perspective, the last 12 months have been challenging for ELSS advocates. Only a handful of ELSS funds yielded positive returns in the last 12 months. These include Axis Long Term Equity Fund, BNP Paribas Long Term Equity Fund, LIC MF Tax Plan and DSP Tax Saver Fund. These funds gave 1-2% positive returns in SIP mode in the last one year period. The loser pack includes Reliance Tax Saver (down 23%), IDFC Tax Advantage (down 14%), Principal Tax Savings (down 13%), Aditya Birla Sun Life Tax Relief 96 (down 12.9%) and Quant Tax Plan (down 12.4%). The one year return naturally affects the three year return and in some cases, the five-year return for SIP investors.
With about Rs 75,000 crore in investor assets, mid-cap funds are a big draw. Investors who like risk and want to look beyond large cap funds, often back mid-cap funds. As per norms, a mid-cap fund has to have a minimum 65% of its money in mid-cap stocks (from the 101st to 250th largest listed stock).
Compared to a benchmark like BSE 150 Midcap Tri, mid-cap equity funds as a category have done well in the year to date period. The average loss of mid-cap funds is around 7.8% as against the benchmark decline of 11.5%. However, the benchmark has beaten the category average in three and five year period. Mid-cap funds remain a strong return potential candidate for investors, but the higher risk means that one has to have a long-term approach while investing in such funds.
The almost one-way decline in most mid-cap stocks has made a big impact on SIP investments. Funds like Motilal Oswal Midcap 100 ETF (down 19%), PGIM India Midcap Opportunities (down 17.8%), L&T Midcap Fund (down 17.5%), Aditya Birla Sun Life Mid Cap (down 17.4%), and Quant Mid Cap (down 17.2%) show how SIP mode has not worked well in the last 12 months.
This has affected the three and five year SIPs in such funds. The only mid-cap fund that is in the green in terms of SIP investments in the last 12 months is Axis Midcap. The likes of Tata Midcap Fund, DSP Midcap Fund, Motilal Oswal Midcap 30 and Kotak Emerging Equity have lost much less than most peers and therefore deserve a mention.
Small cap funds
With around Rs 45,000 crore of investor money parked in these funds, small cap funds are popular among MF investors. In 2014 and 2017, small cap funds had a great run but started to lose steam from 2018 onwards. Like mid-cap funds, small cap funds as a category has done better than benchmark. In the calendar year to date period, small cap funds saw an average loss of 10.2% compared to benchmark BSE Small Cap TRI's 15% decline. Small cap funds, as per category average, have beaten the benchmark in three, five and 10 year period.
For SIP investors, small cap funds have been terrible in the last 12 months. Only Axis Small Cap Fund had generated positive returns or 12.7% in this mode out of over 20 small cap funds. The worst hit are SIP investors in Quant Small Cap (down 41%), Aditya Birla Sun Life Small Cap (down 26%), HDFC Small Cap (down 22%), Sundaram Small Cap (down 21%) and HSBC Small Cap Equity (down 21%). (The author is a journalist with 14 years of experience)