The market has been hovering at new lows every day. Be it the surging oil prices or the European financial crisis or the continuing Russia-Ukraine fiasco, investors are bearing the brunt of global inflation. Take up any mutual fund from the entire gamut of mutual funds, and you will find many of them performing below expectations.
The table lists the performance of some of the best mutual funds over the past year. Most of them have earned negative returns in one year. Others have earned returns much below inflation, thus, raising concerns over their short-term output.
|Name of the fund||Market cap||One-year returns (in %)|
|Axis Bluechip Growth Direct Plan||Large Cap||-6.6|
|Kotak Bluechip Growth Direct Plan||Large Cap||-2.1|
|Canara Robeco Bluechip Equity Growth Direct||Large Cap||-2.24|
|ICICI Prudential Bluechip Growth Direct Plan||Large Cap||1.6|
|HDFC Top 100 Growth Direct Plan||Large Cap||1.9|
|Nippon India Large Cap Bonus Bonus Growth Direct Plan||Large Cap||5.7|
|L&T Midcap Growth Direct Plan||Mid Cap||-0.59|
|ITI Mid Cap Growth Direct Plan||Mid Cap||-1.02|
|Franklin India Prima Growth Direct Plan||Mid Cap||-1.11|
|IDBI Midcap Growth Direct Plan||Mid Cap||-3.11|
|DSP Midcap Growth Direct Plan||Mid Cap||-4.24|
|HSBC Midcap Growth Direct Plan||Mid Cap||-4.97|
|IDFC Emerging Businesses Growth Direct Plan||Small Cap||-3.20|
|Aditya Birla Sun Life Small Cap Growth Direct Plan||Small Cap||-4.12|
|HSBC Small Cap Equity Growth Direct Plan||Small Cap||-5.88|
|ITI Small Cap Growth Direct Plan||Small Cap||-8.53|
|Sundaram Small Cap Growth Direct Plan||Small Cap||2.91|
|HDFC Small Cap Growth Direct Plan||Small Cap||4.58|
These abysmal returns have caused many to panic and raise questions regarding the validity of parking money in mutual funds. Many even ask if mutual fund investments genuinely help to create wealth. Some even consider redeeming their portfolios in favour of other funds or other investment options.
However, many investors forget that accumulating a corpus is a long-term affair and cannot be decided on the basis of just earnings in one or two years. Underperformance over one or two years can be due to myriad reasons including unexpected market volatilities due to macro factors and other reasons.
Irrespective of the reason, you must take care to check for frequent changes in portfolio positions by fund managers that will help understand their outlook on the market and how they wish to optimise on changing business formats and modified economic policies.
Though one may argue that mutual fund schemes differ in returns owing to their distinct portfolios and the choice of companies they invest in. Also, some managers follow value-style investing while others opt for growth-style investing techniques. Schemes also differ regarding the percentage of the money put in equity, debt and money market instruments.
However, a lot also depends on how long you stay invested as money builds upon money over time, thus, lending a compounding effect. You can experience the magic of compounding only when you are willing to invest regularly over a prolonged period.
A look at how mutual fund schemes perform over a tenure ranging for at least five years highlights the folly of novice investors redeeming their portfolios beforehand.
|Name of the fund||Market Cap|
SIP per month
Total invested amount
|Axis Bluechip Growth Direct Plan||Large Cap||10,000||6,00,000||14.16||2,75,920||8,75,920|
|Kotak Bluechip Growth Direct Plan||Large Cap||10,000||6,00,000||13.24||2,53,712||8,53,712|
|Canara Robeco Bluechip Equity Growth Direct Plan||Large Cap||10,000||6,00,000||15.03||2,97,574||8,97,574|
|ICICI Prudential Bluechip Growth Direct Plan||Large Cap||10,000||6,00,000||12.60||2,26,232||8,26,232|
|HDFC Top 100 Growth Direct Plan||Large Cap||10,000||6,00,000||11.27||2,08,441||8,08,441|
|Nippon India Large Cap Bonus Bonus Growth Direct Plan||Large Cap||10,000||6,00,000||12.91||2,45,915||8,45,915|
|L&T Midcap Growth Direct Plan||Mid Cap||10,000||6,00,000||10.05||1,81,889||7,81,889|
|Franklin India Prima Growth Direct Plan||Mid Cap||10,000||6,00,000||11.69||2,17,840||8,17,840|
|IDBI Midcap Growth Direct Plan||Mid Cap||10,000||6,00,000||9.75||1,75,526||7,75,526|
|DSP Midcap Growth Direct Plan||Mid Cap||10,000||6,00,000||11.91||2,22,817||8,22,817|
|Aditya Birla Sun Life Small Cap Growth Direct Plan||Small Cap||10,000||6,00,000||9.80||1,76,582||7,76,582|
|HDFC Small Cap Growth Direct Plan||Small Cap||10,000||6,00,000||16.14||3,26,159||9,26,159|
Not that all mutual funds perform as anticipated. The best way to identify non-performing mutual funds is to check which fund has been underperforming for five or more years compared to its peers. Checking details of their portfolios, Sharpe ratio and management’s outlook in their annual bulletins will help you understand if the fund is worth your consideration.
If you are someone who cannot digest short-term risks, it would serve best to put money in fixed-income plans and bank deposits that guarantee returns unbiased of market movements.
You may also consider government and corporate bonds to build up your corpus though the same would take much time owing to low return rates. Remember that you are planning for the future, which mandates the need to consider important factors like the decreasing value of money, rising inflation rates, and the possibility of low income and high expenses with growing age.