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The Brave And Patient Mutual Fund Investor


The one remarkable thing of equity mutual fund investors, has been the fact that they have stuck to equity investing through mutual funds, despite negative returns in the last one year and dismal returns in the last three years.


The month of August saw steady inflows into equity mutual funds, despite heightened volatility, in which the indices ended the month lower. It was the fourth straight month of growth, which shows that investors continue to have faith in equity mutual funds, despite ordinary returns in the last 1 to 3 years.

The Brave And Patient Mutual Fund Investor

Open-ended equity schemes witnessed money infusion of Rs 9,152 crore, while there was a small outflow of Rs 62 crore in close-ended equity plans, taking total equity inflows to Rs 9,090 crore last month. In July, net inflow in such schemes stood at Rs 8,092 crore.

Despite the poor returns, mutual fund investors have stuck to equity mutual funds and SIP investments in Aug stood at Rs 8,231 crores, which has been steady. In fact, allocation to midcap mutual funds has only increased.

Returns from midcap funds over 1 and 3 years

Name of the fund1 year returns3 year returns
DSP Midcap Fund-2.23%5.14%
HDFC Midcap Opportunities-11.30%3.00%
Kotak Emerging Equity-5.27%5.06%
Axis Midcap Fund-2.80%9.80%
L&T Midcap Fund-12.81%5.87%

The returns from midcap funds have been poor in the short to medium term and this may test investor patience. The hardest hit have been investors who invested 1-2 years back, when many midcap stocks were trading at their peaks. According to reports, the midcap index p/e has now corrected to long-term averages of 18, which is not bad at all. This means at these valuations it would make sense to look at midcaps over the more long term.

Let's take a look at returns from large cap equity mutual funds over the last 1 and 3 years.

Returns from largecap funds

Name of the fund1-year returns3-year returns
Axis Bluechip Fund-3.17%11.42%
HDFC Equity-1.94%7.24%
SBI Bluechip Fund-0.65%5.37%
ICICI Prudential Bluechip Fund-3.33%7.37%
Reliance Largecap Fund-5.79%7.27%

Returns from largecap funds has also been ordinary and have not even beaten bank deposit interest rates over the 1-3 year period, except in very few schemes. The markets need to stage a dramatic recovery from these levels, for investors are to report decent returns from equity mutual funds. It looks like at least the short to medium term investors should hang-on.

Should investors continue with their SIPs?

The answer is an absolute "yes". In fact, the markets are down 7-8 per cent from peak levels and the only way you can make money is "buying low" and "selling high". You are now getting to buy into SIPs, at a much lower level, especially in midcap and small cap funds, where NAVs are significantly lower.

So, stick to investing and probably increase your SIPs, so as to benefit from lower prices. Once the markets recover you are likely to benefit significantly, for buying larger amounts at lower prices. It's likely that equity markets could give decent returns from these levels in the next 2-3 years, which should benefit equity mutual fund investors.

Read more about: mutual fund mutual funds
Story first published: Thursday, September 12, 2019, 10:30 [IST]
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