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Will Mutual Fund Investors Finally Lose Patience?
Mutual fund investors, particularly those investing through SIPs have been a very patient lot. Returns in the last one year have been negative in most large cap, midcap and small cap equity mutual fund schemes. It is very difficult to find positive returns in the last one year in some of the equity oriented mutual fund schemes.
The 2-year returns have not been great either and the 5-year returns in most cases are struggling to beat bank deposits interest rates of 5-years ago. Take a look at some of the biggest large cap funds by assets under management and the returns they have generated.
| 1-year returns | 2-year returns | 5-year returns | |
|---|---|---|---|
| ICICI Prudential Bluechip Fund | -5.14% | 4.92% | 9.92% |
| SBI Bluechip Fund | -4.72% | 2.52% | 9.68% |
| Aditya Birla Sunlife Frontline Equity | -7.31% | 1.15% | 8.35% |
| HDFC Equity | -5.10% | 4.42% | 8.72% |
| Reliance Largecap Fund | -7.80% | 3.85% | 8.90% |
Will investors finally lose patience?
Mutual funds are being sold on the idea that they generate returns over the long-term. However, even the 5-year returns from some of the schemes have been just about ordinary. In fact, 5-years ago banks were giving a much better interest rate on FDs and with quarterly compounding their yields would be much better.
For investors who have invested in the last 1-2 years, the going is likely to be tough. First investors would have to recover their losses of the last one year and than would need patience to generate a decent 9-10 per cent returns.
It is not going to be easy, given the fact that gold in the last one year, has generated returns of nearly 33 per cent for investors. In fact, gold for long had been touted as the worst investment has generated solid returns in the last 1 year.
What is most interesting to note that a significant amount of mutual fund inflows have taken place in the last 1-2 years, when the markets were not very cheap. If for another couple of quarters the returns do not move higher, investors may just about start withdrawing from SIPs as well. They might even prefer recurring deposits, where the returns have been much higher over the last 1-2 years.
Global worries to compound problems
The global worries, just do not seem to go away, which is not good news for mutual fund investors. While the trade tariff wars are still on, fund managers across the globe are worried over a likely recession across the globe.
In fact, UBS the world's biggest wealth manager is bearish on equities. "Risks to the global economy and markets have increased, following a renewed escalation in US-China trade tensions," said UBS' Global Chief Investment Officer Mark Haefele.
In India itself, there is a sharp economic slowdown. Job losses and high frequency indicators point to a definite slowdown in consumption. Against this backdrop it would be extremely difficult for mutual fund investors to expect solid returns. At best they would have to moderate their expectations and hold on at least for the next 2-5 years to see returns fructify. One would really need to have the patience at the moment to make money from equities and mutual funds.
