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The stock market has hit a new high. As on April 10, the Sensex touched an intra-day high of 22,792.49, closing at 22,715.33. However, many equity mutual fund schemes are still trying to catch up with the markets. The net asset value (NAV) of many equity funds across the board - diversified, large- and mid-cap funds - are still near or lower than the January 2008 levels, when the Sensex hit 21,000 for the first time.
The NAV of Birla Sun Life International Equity Fund - Plan B (two-star rated equity diversified fund) stood at Rs 11.11 on April 7 this year and Rs 10.99 on January 8, 2008. Reliance Vision Fund (two-star rated equity diversified fund) stood at Rs 294.51 against Rs 293.04 six years ago. Sundaram SMILE Reg (two-star rated mid- and small-cap fund) NAV quoted Rs 34.96 last week against Rs 34.63 six years ago. UTI Leadership Equity Fund (three-star rated large-cap) NAV quoted Rs 18.93 last week, against Rs 19.18 in 2008. Similarly, Tata Equity Opportunities Plan A (four-star rated equity diversified fund) stood at an NAV of Rs 102.02 against Rs 104.18 six years ago. Most of these are equity-diversified funds, which is the most-recommended category for individual investors.
Additionally, nearly two in every three rated equity schemes under these categories managed to post gains during the period. The returns from these funds over the past five years are: Birla Sun Life International Equity Fund - Plan B at 14.30 per cent; Reliance Vision Fund at 15.21 per cent; Sundaram SMILE Reg at 18.94 per cent; UTI Leadership Equity at 15.67 per cent; and, Tata Opportunities Plan A at 20.39 per cent. This is in sync with returns from the Sensex (at 16 per cent) in the same period. However, the annual increase since January 2008 has been restricted mostly in two to six per cent range. This is not good enough to even beat inflation, ruling at double-digits for several months in the past years.
What should you do with such schemes which could be in your portfolio?
"If the fund has been held for more than five years and not been performing during this period, it would be advisable for investors to exit. As markets are moving in an upward trajectory, take the exit call now," says Renu Pothen, research head, iFAST Financial India.
Agrees Hemant Rustagi of Wiseinvest Advisors. "Six years is a long time. There is no reason to stick with funds that have not done well. Of course, if investors had taken this step three years ago, they would have done much better on their portfolio."
At the same time, he adds you should not exit funds only on the back of poor performance or NAV levels. "You could exit funds which were invested in without any clear objective. But, you may want to check if those that are a core part of the portfolio have turned around, like many have. In that case, it would be beneficial to keep a little more patience till the new government has been formed and see how these funds do. Many top-rated funds that had investments in sensitive sectors like banking and autos will do even better in a stable government regime."
It has not been a broad-based rally. Not every large-cap stock has gone up to the old highs. As a result, fund managers also got stuck into defensive stocks and sectors.
A classic case could be HDFC Top 200, a non-performer in the past three years but has started performing in the past three months. While the fund returned 6.3 per cent in the past three years, it has returned 13.92 per cent in the past three months. Ditto with Reliance Vision Fund, which returned 3.04 per cent in the past three years and 13.74 per cent in the past three months. At the same time, there could be many that have recovered some ground but might not be retainable because it was sheer luck that you got in at the right time and the funds performed.
Check their historic returns and ratings and decide.
"The others could have done well. But that does not mean you can have a higher exposure. An example could be mid- and small-cap funds. Be careful, as these invest in high beta stocks, making the funds risky. Some funds may not look attractive despite some recovery. But these will catch up and could be worth sticking to, like large-caps. Just because these have mostly not done well does not mean you will throw them out," says Kartik Jhaveri of Transcend Consulting.
However, late party joiners have seen the their money growing healthily. While the mid- and small-cap category surged 31.37 per cent in the past year, equity-diversified funds gained 24 per cent. In the past two years, the former gained 16 per cent and the latter 14 per cent. In the past three years, mid- and small-cap funds returned nine per cent against six per cent from equity-diversified ones. And, in the five-year term, the former gave 24 per cent and the latter did 18 per cent, lower than one- and two-year returns. Although the markets are on an upward trajectory, investors have to be cautious, as the volatility index has just surged to a seven-month high. Also, the global markets have not been good. Therefore, continue with goal-based investing and increase exposure to equities in a phased manner.
