All equity mutual fund categories log negative returns in last 1 month. Should you allocate more or exit?
All equity mutual fund categories have offered negative average returns in the last one month. These categories lost between 0.82% to 12.42% in the mentioned period. There were 22 equity mutual fund categories including sectoral and thematic funds in the said period.
SBI Automotive Opportunities Fund, the only auto sector based fund, lost the most at around 12.42% in the last one month. Consumption theme based funds lost 9.18% in the same period.
Energy and Power sector based funds and PSU funds lost around 8.50% and 8.49% respectively in the last one month period. Infrastructure funds posted a negative return of around 8.29% in the same time period.
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Midcap funds and large & mid cap funds offered negative returns of around 7.73% and 7.14% respectively in the said period. Small cap funds delivered a negative return of 7.07%, followed by multi cap funds which lost 7% in the last one month.
Large cap funds posted a negative average return of around 6.36% in the last one month. International funds lost the lowest of around 0.82% in the same time period.
Are you wondering what factors made equity mutual funds deliver negative returns? Are these factors priced in?
According to the expert, the recent negative returns have been driven by a convergence of key factors. Some specific sectors such as the automotive sector has experienced a more pronounced decline further impacting the fund performance. While some of these factors may be partially priced into current valuations, the full impact may not yet be fully absorbed due to ongoing uncertainties.
“The recent negative returns in equity mutual funds, spanning sectoral and thematic categories, have been driven by a convergence of key factors. Heightened market volatility, fueled by global economic uncertainties and escalating geopolitical tensions, has been a major contributor. Additionally, substantial foreign outflows from domestic markets have exerted pressure on stock prices, exacerbating market downturns. Specific sectors, including the automotive industry, have experienced more pronounced declines, further impacting fund performance,” said Sagar Shinde, VP Research, Fisdom.
He added, “Corporate earnings downgrades have added to investor concerns, with the latest revisions marking the steepest cuts since early 2020, reflecting a cautious outlook on profitability and growth prospects. Currency pressures have also played a role, with the Indian rupee hovering near record lows amid continued foreign portfolio outflows and the strengthening U.S. dollar, which raises import costs and adds inflationary pressures.”
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“While some of these factors may be partially priced into current valuations, the full impact may not yet be fully absorbed due to ongoing uncertainties. Risks related to global economic conditions, geopolitical events, and further corporate earnings adjustments may continue to contribute to volatility, suggesting that markets may remain sensitive in the near term. Therefore, caution is warranted as investors evaluate the extent to which these headwinds have been accounted for in asset prices,” he further added.
Out of 22 equity mutual fund categories, 17 gave negative returns in the last three months. Auto sector based funds lost the most of around 9% in the last three months followed by PSU funds which lost 8.68% in the same period.
Large cap and large & mid cap funds posted a negative average return of around 2.39% and 2.02% in the same period. International funds offered the highest return of around 6.12% in the last three months.
With many equity mutual fund categories continuing to offer negative returns in the recent past have made many investors worried about their investments. Investors are looking for recommendations whether they should use this as an opportunity to invest more or should continue with their current investments.
The expert recommends that the recent market corrections can indeed be used as an opportunity for long-term investors to acquire quality assets at lower prices. One should also temper the expectations for short-term gains and avoid taking excessive risk.
“Market corrections, such as the recent downturn in equity mutual funds, can indeed present an opportunity for long-term investors to acquire quality assets at lower prices. However, it’s essential to temper expectations for short-term gains and avoid taking on excessive risk. Investors with a long-term outlook may benefit from staying invested or gradually increasing their exposure during market lows, provided they have sufficient risk tolerance and the ability to withstand potential short-term volatility,” recommended Shinde.
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“Maintaining a diversified portfolio remains critical in mitigating sector-specific risks and offering a buffer against further market swings. While the current correction appears to be an opportunity, it’s advisable not to treat it as a dip for immediate overallocation. Instead, investors should adopt a gradual approach to increasing their exposure, aligning with market trends and their overall financial goals,” he added.
In the last one year, three sectoral and thematic fund categories have offered more than 40% return. PSU funds topped the return chart and gave 47.81% in the last one year. Pharma and healthcare funds posted a return of 45.32%, followed by infrastructure funds which gave 40.90% return in the said period.
Smallcap funds offered 30.54% return in the above mentioned period. Flexi cap funds and focused funds offered 29.47% and 29.41% returns respectively in the last one year.
After looking at the above-mentioned period, are you wondering which equity mutual fund categories look attractive now? And what allocation should one make?
According to the expert, the large cap funds and flexi cap funds remain particularly attractive due to their favourable valuations. For conservative investors wanting exposure to equities, dynamic asset allocation funds and multi-asset funds provide risk mitigation while maintaining market exposure.
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For those with a higher risk appetite, sectoral funds focused on pharmaceuticals and banking present appealing growth opportunities. The recommended method for deployment is through Systematic Investment Plans (SIP) or Systematic Transfer Plans (STP). For lump sum investments, a 3–6-month STP is advisable to optimize market entry.
“Among equity mutual fund categories, large-cap and flexicap funds with a strong large-cap orientation remain particularly attractive due to their favorable valuations, offering a better risk-reward balance compared to relatively higher-valued mid and small-cap segments. Sustained strong inflows into these funds indicate consistent investor confidence, with further increases anticipated. This makes large-cap-oriented funds an excellent option for those seeking a combination of stability and growth potential. For conservative investors wanting exposure to equities, dynamic asset allocation funds and multi-asset funds provide risk mitigation while maintaining market exposure,” advised Shinde.
“For those with a higher risk appetite, sectoral funds focused on pharmaceuticals and banking present appealing growth opportunities. However, investors should avoid overallocating to these categories and instead gradually increase exposure as market momentum builds,” he added.
“A well-balanced allocation strategy would involve a significant proportion in large cap, flexicap, and hybrid funds for stability, complemented by targeted exposure to pharmaceuticals and banking sectors for growth. This diversified approach aligns with various risk profiles and investment horizons. The recommended method for deployment is through Systematic Investment Plans (SIP) or Systematic Transfer Plans (STP). For lump sum investments, a 3–6-month STP is advisable to optimize market entry,” he further advised.
One should always consider risk appetite, investment horizon, and goals before making any investment horizons.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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