NAVs of new funds turn negative

The dramatic fall in stock prices has taken a heavy toll on the recently launched mutual fund schemes.

According to data collected by the Delhi-based mutual fund tracking firm Value Research, as many as 25 new schemes are currently worth less than when they were launched at.

Nearly all the 16 new funds launched this year have found their net asset value (NAV) decline as the markets went into a tailspin since last Thursday.

Even the high profile Reliance Equity Fund, which had collected Rs 5,750 crore, currently has a NAV of 9.74.

The fund promised to mitigate risk by using derivative instruments.

"Till now, it was too easy to make money, and the mutual fund managers seem to have taken a call that market will soon return to their normal levels. In the short term, the outlook is bleak and our advice for any investor who might need the money within the next one-and-a-half year is to keep the cash," said Value Research's Chief Executive Dhirendra Kumar.

Capitalising on the huge appetite for equity from retail investors, mutual funds have been aggressively launching new fund offerings. The new equity fund schemes launched this year so far have collected nearly Rs 20,000 crore.

However, they seem to have been caught on the wrong foot since they have built a portfolio at a time when the markets have already run up substantially. The recent volatility is only adding to their woes.

Fund-managers pointed out that as long as investors themselves do not start redeeming, their mandate is to stay invested.

"Though most of the new investments are being made from the recent funds, we also have had very healthy inflows into our older funds owing to their performance. So, whenever markets dip and individual stocks become attractive based on their relative valuations, we buy. Besides, there is no redemption pressure,' said N Sethuram, chief investment officer, SBI Mutual Funds.

If stocks continue to dilly-dally and the retail mood turns negative, funds may face redemption pressures, which could affect their performance further.

"Once the NFO money is over and the redemption pressure kicks in, unless FIIs reverse the trend, fund-managers will be forced to start selling," said Kumar.

The mutual funds have been on the selling side when the markets were going up from December last year to this February and on the buying side when the market started slipping last month.

In the first 50 days of this financial year, domestic funds have pumped in more than Rs 8,000 crore, nearly 57 per cent of their entire investment in equities during the last financial year. During this period, the Sensex has slipped 9 per cent.