Upbeat about equity mutual funds? Look at these numbers

Many equity mutual fund investors are suddenly feeling positive. The double-digit returns offered by most equity mutual fund categories in three- and one-month periods seem to have reassured many investors, say mutual fund advisors.

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Many equity mutual fund investors are suddenly feeling positive. The double-digit returns offered by most equity mutual fund categories in three- and one-month periods seem to have reassured many investors, say mutual fund advisors. In fact, many investors have regained their confidence and they are enquiring about allocating more to certain categories.

Obviously, some investors are really impressed by the returns posted by some categories in the short periods. Advisors are at pains to explain to them that the troubles are not over year and they should proceed cautiously when it comes to investing in equity mutual funds. Some enterprising advisors are asking their clients to look at another set of numbers before making up their mind.

You might have guessed correctly that these advisors may be asking their clients to look at the returns in the longer horizons. However, they have used a new one – YTD or year to date – to caution investors.


Categories YTD Returns (%)
Large Cap -12.89
Large & MidCap -12.42
Multi Cap -12.31
Mid Cap -8.62
Small Cap -10.29
ELSS -12.59

One cursory look at YTD returns is enough to convince most investors that the markets are not out of woods yet. For example, the large cap mutual fund category has given around 19% returns in the last three months, and 13% returns in the last one month, according to Value Research, a mutual fund tracking firm. The large cap category has lost money in the year to date period; its YTD returns are -12%. Similarly, most other prominent categories like large & mid cap, multi cap, mid cap, small cap, and so on, posted negative YTD returns.

Most of these categories have barely made single-single digit returns in three-, five- and 10-year periods. Sure, the recent sharp fall has obviously dragged down these returns, but it still tells you that the market is not on a bull run.

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Most mutual fund managers believe that the next two quarters are unlikely to surprise the markets. The economic disruptions caused by the Covid pandemic are likely to linger in the next few months and we would see meaningful recovery only the next year. If that is the case, the market is likely to remain volatile. They believe that liquidity might prop up a few select stocks, but the market is unlikely to see a broad-based rally without numbers to back up the performance.

In such a background, investors should remain focused. They should be mindful about the disruptions on their career front, and their impact on their personal finances. Your emphasis should be on a large contingency fund and to tide over the current situation. You should think of taking the plunge by allocating more and taking extra risks, only after you are convinced about the revival in the economy, say advisors.

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