Is the mutual fund party over? – how to cope up with falling NAV


As a mutual fund investor, please, pay attention to a statement of a renowned long-term Investor. Yes, Charlie Munger who is investment partner of Warren Buffett and who always use to say –

Don’t pay attention too much while you are investing at least for 3-5 years.

Why so? – why we need to keep long-term view with our mutual fund investments

Let’s find out the actual reason behind this statement and its relevance for long-term investment. Especially for the mutual fund in a current market scenario. Currently, the returns on the latest mutual fund investments are either bleeding or near zero, since last 6-8 months.
Mutual funds are ideal investment tools for those who do not have the prior experience. Or even for those who lack sufficient time to invest directly in the stock market. A fund manager is who manages such funds on behalf of small investors. They simply do the job of picking the stocks with diversification. They also keep in mind the low cost and is capable of making excellent returns from your investment.
So, a mutual fund is to simplify the job of investing for a long-term. But the question is  –

Is mutual fund investing that simple?

The task of choosing a good fund manager can be a mind-boggling task. A fund manager managing verities of funds with a record of good average return over the years. Making the right choices at right time, require some efforts. Efforts either from you, in case of the direct plan or from your distributor.

At the same time, too much information and analysis hide knowledge. It also prevents actual understanding of the theme for being investing in the Mutual fund. Nonetheless, we are in the inter-coupled market situation. Furthermore, most of us agree that high fluctuating stock or indices prices makes our mind random.

However, when you are in an enclosure of well informed financial advisors or professionals, you altogether get other way ideas. They generally do not recommend stopping investment at all when prices are tumbling down. Tumbling during any correction or even during a pause in the bull market.

But there are certain situations where redeeming your investments a mutual fund might be necessary. It might become the need of the hour as per your pre-defined goals. The goal that was there when you had started investing.

But why this erosion across mutual funds NAV?

If you hold a mid-cap and small-cap fund in your portfolio, you have an experience of hefty erosion. You would have also seen a major erosion as BSE Midcap index. It is down near 15 % from its peak value. Similarly, the small-cap index has fallen around 18 %. It started falling from the second week of January 2018.

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There is a lot of changes since the announcement of Budget 2018. The market enthusiasm has seen little dullness resulting in a sharp fall in these two sectoral indices. Essentially, both foreign investor as well as institutional investor ignite the selling. This was due to overweigh valuations as per their potential global portfolio investments.

The SEBI’s recently came up with guidelines on re-categorization of mutual funds. They provide with certain limits on allocation for a particular type fund under any schemes. There are other temporary factors like depreciation in rupee value against the dollar. Or the overnight news on the geopolitical tensions between the US & North Korea. There were also events such as a sharp rise in the crude prices in recent quarters and the introduction of LTCG tax in equities etc.

So the party is over for now in the mutual fund investing?

I am referring the party in terms of return from mutual fund investing. Especially returns from the mid-cap and small-cap mutual fund schemes in the last two years. When we see the long-term returns from both mid-cap and small-cap, we get some confidence.

The mid-cap schemes gave a return of near 22%.  While small-cap has done the exceptionally great job with near about 27 % in same last two years period. It is only until the second week of December 2017 and after that, we are observing a continuous fall.

 After such phenomenal performance, there was a major blow. The same mid-cap category gave an average of -6% returns. While the small-cap with near -8% in such a small period of 6 months.

 Last six-month percentage return of some popular mutual fund schemes - Mid-cap and small-cap segments

What next? – do you need to keep invested or exit from your mutual fund holdings

As a Mutual fund investor, you should be well informed about all options such as large-cap equity funds, equity-oriented hybrid funds, debt funds, liquid funds etc. As one can see that every option has had its own unique feature. Like large-cap MF invests a bigger portion of the total in large-cap companies. The diversified fund gives the fund manager more liberty to invest all across the market. A liquid fund is just like a safe parking place for a small time frame where short-term debt fund is known as the low-risk fund.

Fund managers and many market experts are not in a hurry to reclaim the same recovery pattern for underlined segments as it was in 2016-2017. The market is looking great in the last few days but there is no sign of recovery in such segments.M any positive changes in the economy are happening and any positive outcome would be visible once GST operational stabilization benefits and other Government initiatives would be in synchronization. Nobody can forecast what will trigger next rally in coming days but everybody should be confident about India Growth story.
For an Investor, time spent in the market is more important than looking for the best timing. Any illustration related with the best timing is a vague figure when you belong to the investor community and that too in a Mutual Fund segment.
Be invested, be calm as –

“Party to abhi shuru hui hai “( Party has just started now !)


About Author


Shashank is an MBA Finance & Certified Financial Planner (CFP). He has been in the financial services industry for more than 3 years. At Money Dial Shashank heads the Product. Shashank has a penchant for writing and giving trainings on financial markets and often has many interesting things to share.

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