There have been several factors responsible for the downward curve in mutual fund performance since June 2018. Read on to know how the new move by SEBI has made MF small investor-friendly, and some schemes that are suitable for such investors despite the grim capital market scenario.
A string of socio-economic incidents, one after the other, have influenced the negative growth of the Indian stock market since June 2018. The only redeeming feature in the slumping capital market has been the consistent inflow of investments from mom-and-pop investors, i.e. small investors. The trend has continued well into 2019 as well. An unprecedented record of a purchase of shares worth a whopping Rs. 1.18 trillion has negated the outflow of foreign investments evaluated at $4.5 billion.
Factors challenging capital market growth in 2018-19
Needless to say, factors that are impeding the growth of the capital market have been responsible for the weak performance of mutual funds since June 2018.
- Rising crude oil prices
- Slumping Indian Rupee against the US Dollar
- Widening CAD (Cash Against Documents)
- Rate hikes by RBI
- General Elections in 2019
- Trade Wars in Turkey
- Regional elections in the states of Mizoram, Chattisgarh, Rajasthan and Madhya Pradesh in late 2018 and early 2019
Factors that have affected the performance of Mutual Funds
Here are some of the predominant reasons that have led to the downward performance of mutual funds since the second half of 2018:
- The new rule by SEBI (Securities and Exchange Board of India) that cuts the expense ratio for open-ended equity schemes on the basis of size, has been one of the primary reasons for upsetting the performance of mutual funds. The expense ratio refers to the fees charged from investors by mutual funds for their efficient management. SEBI decided to modify the process for consent with respect to securities market offenders, and initiated new rules for mandatory debt market borrowings for large organizations. These measures serve the objective of making mutual fund investments cheaper and a viable investment plan for small investors.
- A substantial number of mid-cap stocks were sold off around the same time. More specifically, mid-cap and small-cap mutual funds worth Rs. 10,000 crore were sold off to tide over the existing market challenge.
- Certain stocks have been fuelling the current rally. Multiple mutual funds invested in small and mid-cap stocks that have witnessed some correction recently.
Best Mutual Funds to invest in, in 2019
Here are some of the best mutual funds to invest in 2019:
- Aditya Birla Sun Life Frontline Equity Fund : This mutual fund aims to invest in equity to achieve long term growth. Additionally, it also seeks to generate a stable source of monthly income for investors. The return on investment in the past was around 6% after 1 year of staying invested in the investment plan, 13 % after 3 years and 14% after 5 years.
- ICICI Prudential Value Discovery Fund : This mutual fund is designed to invest in diversified financial instruments, aiming at capital growth. The past return on this mutual fund scheme was 3% after1 year, 10% after 3 years and 16% after 5 years of remaining invested in this investment plan.
- HDFC Mid-cap Opportunities Fund: This mutual fund scheme is designed to invest in mid cap companies. It serves the dual purpose of achieving capital appreciation and offering a reliable source of monthly income. The past return from HDFC Mid-cap Opportunities Fund was -1% after 1 year, 15% after 3 years and 20% after 5 years.
DSP Small Cap Fund : DSP Small Cap Fund is especially tailor-made to invest in stocks of small cap organizations with the objective of assuring investors of long term capital growth. The past return on investment was -23% after 1 year of staying invested in the scheme, 12% after 3 years and 21% after 5 years.
Axis Long Term Equity Fund : Axis Long Term Equity Fund aims to generate long term capital growth by investing in diverse equity related securities. The past return on investment was 6% after 1 year, 13% after 3 years and 17% after 5 years.
Predicting what the future holds
According to the Association of Mutual Funds in India, there has been a visible growth from Rs. 12 billion to Rs. 80 billion per month. A considerable contribution towards equity investment plans is made by mom-and-pop investors, especially in the recent past. This has gone a long way in cushioning the market against global shocks through rupee cost averaging. Uncertainties driven by the current trade tensions and the upcoming general elections to be held in May will continue to intensify the capital market volatility for a while longer. In such a situation, small investors will keep playing a dominant role in testing the market stickiness in the coming months leading to the May general elections.
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