Tech & small-cap funds stragglers in past week amid market sell-off

Investors should stick to flexi-cap, balanced advantage funds instead

Sharp sell-off in Indian equities in the past few days has led to a fall in returns of the key equity fund category. While all categories in equity funds are in the red, technology (tech) and small-cap funds are the worst hit as they delivered negative returns of 9.88 per cent and 7.6 per cent, respectively, in the past week.

With greater uncertainty likely in the days to come, market players are saying that investors should stick to flexi-cap and balanced advantage funds (BAFs) to tide over the current volatility.

In the past few days, Indian equities have seen sharp correction as investors dumped risky assets on fears that the US Federal Reserve might embark on a sharper rate-hike trajectory to control inflation.

On Monday, the Sensex fell 1,546 points, or 2.62 per cent, to close at 57,491 — the lowest level since December 27.

In the past one week, the S&P BSE Sensex has been down 5.63 per cent, while the MidCap and SmallCap indices have given negative returns of 7.26 per cent and 7.29 per cent, respectively.

G Pradeepkumar, chief executive officer, Union Asset Management Company, says, “For many months now, we had been advising investors to look into balanced advantage and asset allocation funds since valuations of the market were high. Even after the recent correction, the valuation remains somewhat stretched and it’s better to stick with flexi-cap or asset allocation funds.”

Dynamic asset allocation, also known as BAFs, have fallen 3 per cent in the past one week. But given the structure wherein they invest in both debt and equity, the fall in markets on Monday had a reduced impact on BAFs. The one-day returns of the dynamic asset allocation funds were down minus 1.3 per cent, while other key categories were down 3-4 per cent on Monday.

On the other hand, the pain was less pronounced in funds, such as thematic public sector undertaking, international, and banking. Market players continue to say that investors should look at their asset allocation and invest accordingly.

“If you look at the 42-year history of the Sensex, a 10-20 per cent temporary correction has occurred almost every year. In other words, a 10-20 per cent correction is common. Most corrections end up recovering back from the 10-20-per cent falls. If history is any indicator, most likely this might turn out to be a normal correction and investors can continue to stick with their original asset allocation plan (split between equity and debt allocation),” says Arun Kumar, head of research, FundsIndia.