INSUBCONTINENT EXCLUSIVE:
NEW DELHI: It's short-term gains that keep investors hooked
And when the tide turns, they run helter-skelter.
Midcap and smallcap MF schemes are already feeling the heat
A drop of up to 10 per cent over the last one month has only pushed investors to reach out for that panic button
But should they
The clear and present danger is investors run the risk of losing their investment rationale due to short-term hiccups
But what if the premise of such an investment is based not on fundamentals, but past returns
Like direct stock investing, returns in equity
mutual fund are subject to market uncertainties
And midcap and smallcap funds as a pack are always considered risky
Analysts time and again ask investors to go for such schemes only if they have the stomach to absorb any sharp short-term disruptions
But investors are a different tribe
They chase past performances, said Dhirendra Kumar, CEO at Value Research
This could be one reason why they act like traders when any selloff in midcaps happens.
ICICI Prudential Smallcap Fund has come down by 9.34
per cent in the past one month
For the last one year, the scheme has returned a mere 0.35 per cent.
The NAV of SBI Magnum Midcap Fund too has lost sheen
It's down 8.9 per cent over the last one month and 2 per cent in the past one year
Edelweiss Mid Cap Fund, Baroda Pioneer Midcap Fund, AB SL Pure Value Fund, IDBI Small Cap Fund, UTI Mid Cap Fund, you name it, the midcap
funds have on an average dropped 7.7 per cent in a month
Smallcap peers such as Sundaram Small Cap and HSBC Small Cap Equity Fund have taken a bigger hit, down over 9 per cent.
But go back to 2017
when the same basket was up 55 per cent, Kumar reminds you.
"In terms of 10-year return, they are the best performing funds
Despite the peak of 2008, the 10-year annualised return from small cap funds is 16 per cent compared with 10 per cent for large cap funds
So, despite the recent so-called meltdown, this 16 per cent was twice as much return as fixed income as all your returns were tax free till
January 31," Kumar told ET Now.
Things look more impressive in the last five years as small cap funds are up and annualised 30 per cent even
after the recent fall is factored in.
According to Kumar, these big declines can come for a short spell and if you do not have the stomach,
"Mutual fund is a great vehicle to invest in small caps as compared to investing in small caps directly
You run the great risk of losing all your money in direct dealing compared to just volatility," Kumar explained.
Kumar insists that people
start their investment with a balanced fund and stop at a multicap one
"Most investors who have invested a year and a year-and-a-half ago will still be sitting on gains
If they are getting unnerved, take the money out of it, get into a balanced fund or a multicap fund," he advised
He is all for a long-term investment plan because it makes sense to stay invested
"If you stick to some basic tenets and principles, you will be okay
If you are chasing recent past performance, you will be disappointed
If you accidentally benefit from investing in a smallcap fund, you are lucky! Take out your money and go for your holiday," he said, tounge
