How your equity mutual funds fared in 2019


Amidst a deepening slowdown in GDP growth, benchmark indices in India touched all-time highs. However the indices were driven forward by a narrow breadth of stocks and most mutual funds failed to keep up. As of 20th December, the large cap category delivered an average return of 10.54%, short of the benchmark return of 13.34% on the Sensex according to Value Research data. Large and midcap funds delivered just 7.19% and multicap funds gave a 9.12% return. Worst affected were midcap and small cap funds which gave returns of 1.20% and -3.90% respectively. “2019 teaches us that diversification is key and this includes diversification across market segments (large, mid and small caps). This is best done through multicap funds. Investors should avoid picking particular segments like mid cap funds or small cap funds to the exclusion of ohers,” said Viral Bhatt, a Mumbai based independent financial advisor.

A small set of AMCs such as Axis Mutual Fund which took concentrated bets on outperforming growth stocks were able to beat the benchmark indices. Axis Bluechip Fund posted returns of 18.69%. On the other hand, funds focused on ‘value’ rather than ‘growth’ investing saw lackluster returns. ICICI Prudential Value Discovery Fund, the largest scheme by assets in this category returned a meagre 0.27%. “Consistency is important. Investors should not simply jump into this year’s performers. Also the concentrated positions taken by them are a source of risk,” said Bhatt.

Aggressive Hybrid Funds are classed as equity funds for tax purposes. These funds were helped by a fall in interest rates on both their debt and equity components (bond prices rise when interest rates fall). As a result several funds in this category posted high double digit returns such as BNP Paribas Substantial Equity Hybrid Fund (16.16%), Motilal Oswal Equity Hybrid Fund (16.08%) and Axis Equity Hybrid Fund (14.05%). However the giants of this category such as ICICI Pru Equity and Debt Fund and HDFC Hybrid Equity Fund lagged behind with returns of 10.62% and 7.98% respectively.

The unexpected behavior of equity markets in 2019 brings home the lesson of diversification. Those entering the outperformers of the year should exercise caution.

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