Do You Hold These Worst-Performing Equity Mutual Fund Schemes In Your Portfolio?
Sep 17, 2019

Author: Divya Grover

(Image source: photo created by ijeab - www.freepik.com)

India's goal of becoming US$ 5 trillion economy seems to be waning with the GDP growth reaching its 6-year low in June 2019 quarter. Low investments, weak demand and consumption, rising unemployment rate, all point to weak macros. As a result, corporate earnings continue to be uninspiring.

Growth in corporate earnings is vital to support the equity market rally. Therefore, the equity market is going through one of its most volatile phases in recent years. In the last one and a half year while the market indices reached highs on multiple occasions, frequent crashes were quick to erode the gains. Consequently, returns of many equity mutual funds took a beating.

[Read: Want To Multiply Your Portfolio Returns In A Volatile Market? Read This!]

Table: Worst performing mutual funds based on 2 year returns

  Returns (Absolute %) Returns (CAGR %)
Scheme Name 1 Year 2 Years 3 Years 5 Years
Sundaram Small Cap Fund -15.37 -12.58 -1.70 5.98
Aditya Birla SL Pure Value Fund -20.29 -11.96 0.35 7.20
Quant Small Cap Fund -22.70 -11.51 -5.63 0.44
Aditya Birla SL Small Cap Fund -20.37 -11.10 0.21 9.06
HSBC Small Cap Equity Fund -16.70 -10.46 0.33 6.75
DSP Small Cap Fund -14.12 -8.69 -0.22 10.61
Indiabulls Value Fund -14.98 -8.34 0.77 NA
Union Small Cap Fund -15.16 -7.91 -0.47 4.18
Aditya Birla SL Midcap Fund -13.29 -7.77 1.84 9.16
IDFC Sterling Value Fund -16.14 -7.36 6.33 8.05
Best Fund 7.17 10.71 13.55 17.45
Worst Fund -22.70 -12.58 -5.63 0.25
S&P BSE 500 - TRI -6.85 1.97 7.76 8.36
Data as on September 17, 2019
(Source: ACE MF)


Around 92% of all the equity schemes (excluding ELSS, sectoral/thematic funds and ETFs) delivered negative returns in the last 1 year, while 47% of the schemes posted negative returns in the last 2-year period.

Small cap funds were among the worst performers, followed by value funds. Among the bottom 10 performers based on 2-year returns, five schemes registered double-digit decline in returns. Most of these schemes failed to improve its returns over the longer time frame.

Are you holding any of these non-performing mutual funds?

Here is what you should do...

Whenever mutual funds generate negative returns, investors tend to rethink their investments. We at PersonalFN have always advised investors to not be bothered by volatility and poor performance in the short-term. But schemes with poor returns after 5 years is a cause of worry.

Poor performance in last 2 years pulled down the returns in 5-year period for many schemes and investors had to be satisfied with single-digit growth.

If your scheme performed poorly in the 1-year and 2-year period but provided meaningful returns in the longer time period, you need not worry. But if the scheme has consistently performed poorly and lagged behind many of its category peers and benchmark across market phases; it is better to replace it with a better alternative.

It is important to note that even during the volatile period some schemes managed to resist it and emerged as a winner by consistently performing well across periods.

The best performing scheme in the 1-year period delivered 7.2% returns even as many schemes grappled with double-digit decline. Similarly, the top performer on a 2-year return basis delivered 10.7% return. These schemes continued to provide better returns across longer time horizon.

How did these schemes manage to perform well even during a tumultuous period?

The answer lies in the quality of the fund house, the consistency of the portfolio and the fund manager's ability to perceive changing market conditions and act accordingly. These schemes follow robust investment process and have efficient risk-management system in place.

If you too want to invest in schemes that perform well across market phases and cycles, then you need to carefully select scheme after evaluating on various quantitative and qualitative parameters which are as follows:

  1. Consistent better performance across bull and bear phases

  2. Superior risk-adjusted returns

  3. Portfolio quality

  4. Fund manager's experience and track record

  5. Efficiency of fund house

The schemes that you select must be a reflection of your own needs such as financial goal, risk profile, and investment horizon. It is crucial that your portfolio is strategically placed to take advantage of changing market conditions and minimise the impact of volatility/economic slowdown.

[Read: Why It Is The Best Time To Build A Strategic Mutual Fund Portfolio To SIP Into]

The Core & Satellite approach to investing will enable you to do just that. The Core part forms a major part of the portfolio and it is relatively less volatile with stable returns. It has a mix of large-cap fund, multi-cap fund, and value style funds.

The Satellite part of the portfolio takes advantage of a relatively risky approach to boost overall returns. It includes mid-cap fund, large & mid-cap fund, and aggressive hybrid fund.

The portfolio can be structured by carefully assigning weightages to each category and schemes selected for the portfolio. This diversification strategy reduces the portfolio risk and thereby optimises the returns.

If you have selected worthy schemes, you should stick to your investment till your goal is achieved and avoid making hasty decisions when the market is turbulent. But at the same time perform a periodic review of your portfolio to weed out any non-performer and replace it with a better performing scheme.

The various reforms announced by the government in the recent past offers hope of an economic revival and when that happens, the equity markets will make an upswing and boost your portfolio returns.

Editor's note:  If you are looking for high rewards with moderate risk, consider PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025(2019 Edition)".

With this, you gain access to a ready-made portfolio of top recommended equity mutual funds for 2025 based on the Core & Satellite approach to investing.


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Sep 17, 2019

Ok you have written an article but where is even your answer to how best performing scheme managed to generate more than 7% returns over 1 year & more than 10% returns over 2 year period, let alone analaysis thereof which is what readers expect from you? In fact many blodgs have analyzed the same & in a couple of articles on blogs they have cited the reason of new categorization/classification by SEBI !! What is your analysis if at all it is done? In fact you have not even mentioned the name of the best performers? Why? Can we expect you reply to the aforesaid comment with analysis & names of those best performing equity funds over 1 & 2 year period?
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