Panic-stricken mutual fund (MF) investors made several calls to their fund houses and investment advisors on whether they should pull out from equity schemes and stop their Systematic Investment Plans (SIPs) for now.
The stock markets had their worst single-day fall since February. The BSE exchange’s benchmark Sensex fell 2.2 per cent or 806 points. The BSE Midcap and Smallcap indices tumbled around two per cent each.
The Sensex has slid by nearly 10 per cent from its peak on August 28. The small and midcap indices are down 30 per cent and 23 per cent, respectively, from the peak in January.
The fall has negatively impacted the net asset values (NAVs) of almost all equity schemes, triggering concerns among investors, particularly those who had committed to incremental investments in recent months.
Dhruv Mehta, chairman of the Foundation of Independent Financial Advisors (Fifa), said: “Investors are not only concerned about their investments in equity schemes but also in the fixed income schemes, given the liquidity situation in the corporate bond market.”
The NAVs of debt schemes have also been hit as bond yields have hardened. And, the default by IL&FS has triggered a liquidity crunch, leading to a spike in yields of debt papers issued by non-banking financial companies. Yield and price move in opposite directions.
Advisors say it is not only the new investors who are spooked but the older ones, too. “Some of these investors have been with me since more than five years. They are no novices to the markets, as they also invest directly into stocks,” said Srikanth Matrubhai, a Bengaluru-based MF distributor and advisor.
While the concerns are across the board, mid-cap and small-cap scheme investors are finding it especially difficult. “These investors have had a difficult few months. When the markets were making new highs, they were still making losses in their investments. They had entered while expecting mid-cap and small-cap schemes to continue with their strong past performance,” said Alok Agarwala, senior vice-president at Bajaj Capital.
Illustration: Ajay Mohanty
Industry players say they would watch how mid-cap and small-cap schemes weather the situation. “The volatility started last month. This month will be a good test for the MF industry. More than 10 million SIPs in the industry are more than five years old and their experience has been good. In spite of the long-term structural story of India being intact, some investors might feel the need to redeem, when the time is actually a good one to buy equity. We need to check how net sales have an impact on asset sizes of the mid-cap schemes, where a lot of money flowed in the past two years,” said Swarup Mohanty, chief executive officer (CEO) of Mirae Asset Management Company (AMC).
Aashish Somaiyaa, the CEO at Motilal Oswal AMC, hopes the results season would help in improving the situation, as focus will shift to companies’ fundamentals. Sunil Sharma, the CIO at Sanctum Wealth Management, adds that monetary policy and fiscal policy can help in stabilising the situation.
The MF sector has been seeing a slowing of equity inflow in the past few months. In August, these slowed to Rs 84 billion, lowest in the current financial year (starting April 1). SIPs are also seeing a rise in applications for closure. Experts say the flows could moderate further if market sentiments remain weak.