Getty ImagesMany mutual fund investors are not happy with the performance of their schemes. Some of them can’t figure out why the scheme is still not offering positive returns even though the markets seem to have recovered substantially from the lows in March. Some investors are worried about the volatility – they realise they can’t handle such sharp fluctuations. In short, most of them are unhappy with their mutual funds and they have been questioning their advisors.
First, let us address the performance of the scheme versus the market. It is true that the markets have recovered smartly from the lows they have hit in March due to the Covid pandemic and national lockdown. However, if you look at the performance of individual schemes, you might be disappointed. You would notice that most schemes are offering meagre returns in one-, three- and even five-years.
For example, Canara Robeco Bluechip Equity Fund, the topper in the large cap category in the one-year horizon, is offering 3.76%. The scheme is offering around 9% returns in three- and five-year horizons. Similarly, PIGIM India Midcap Opportunities Fund, the topper in the mid cap category in the one-year horizon, is offering 6,68%. The scheme is offering paltry 0.05% and 3.50% returns in three- and five-year periods.
Why is this stark difference between our perception about the market performance and the performance of our schemes? Well, one reason could be that we remember the big fall in the market in March and subsequent recovery of 1,000 points every other day. This might be giving us an illusion of a major recovery in the market. However, if you look at the Sensex movement in the last one year, you will find out that it still has not reclaimed its high a year ago.
The Sensex was at 38,720 on July 8, 2019. It hit a low of 25, 981 on March 23, 2020 and it is currently hovering around 36,801. In short, the major index hasn’t made any actual gains in one year.
If you move to your scheme’s respective benchmarks, often a broader and total return index, you would see that they have fared even poorly. So, do not blame your funds for their poor performance.
Let us move to the second topic: extreme volatility. If you are bothered by the volatility or very high negative returns offered by a scheme, you should look a little closer. Mutual fund advisors say mostly investors are unnerved about the performance of a scheme because the scheme is not in line with their investor profile. Is that the case?
You should find out the category of the scheme and its risk-reward profile to ensure that it is in line with your investment objective and risk profile. Mutual fund advisors point out that there are many investors trying to get rid of their risky investments in certain categories and sectors after they realised they can’t handle the extra risk and volatility associated with these schemes. If you are in a similar situation, you should talk to a mutual fund advisor about it.
First, let us address the performance of the scheme versus the market. It is true that the markets have recovered smartly from the lows they have hit in March due to the Covid pandemic and national lockdown. However, if you look at the performance of individual schemes, you might be disappointed. You would notice that most schemes are offering meagre returns in one-, three- and even five-years.
For example, Canara Robeco Bluechip Equity Fund, the topper in the large cap category in the one-year horizon, is offering 3.76%. The scheme is offering around 9% returns in three- and five-year horizons. Similarly, PIGIM India Midcap Opportunities Fund, the topper in the mid cap category in the one-year horizon, is offering 6,68%. The scheme is offering paltry 0.05% and 3.50% returns in three- and five-year periods.
Why is this stark difference between our perception about the market performance and the performance of our schemes? Well, one reason could be that we remember the big fall in the market in March and subsequent recovery of 1,000 points every other day. This might be giving us an illusion of a major recovery in the market. However, if you look at the Sensex movement in the last one year, you will find out that it still has not reclaimed its high a year ago.
The Sensex was at 38,720 on July 8, 2019. It hit a low of 25, 981 on March 23, 2020 and it is currently hovering around 36,801. In short, the major index hasn’t made any actual gains in one year.
If you move to your scheme’s respective benchmarks, often a broader and total return index, you would see that they have fared even poorly. So, do not blame your funds for their poor performance.
Let us move to the second topic: extreme volatility. If you are bothered by the volatility or very high negative returns offered by a scheme, you should look a little closer. Mutual fund advisors say mostly investors are unnerved about the performance of a scheme because the scheme is not in line with their investor profile. Is that the case?
You should find out the category of the scheme and its risk-reward profile to ensure that it is in line with your investment objective and risk profile. Mutual fund advisors point out that there are many investors trying to get rid of their risky investments in certain categories and sectors after they realised they can’t handle the extra risk and volatility associated with these schemes. If you are in a similar situation, you should talk to a mutual fund advisor about it.
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