These Funds Have Fallen 20-25% In The Last 1 Year. Do You Hold Any Of These?
Apr 06, 2019

Author: Deepika Khude

(Image by snowing via freepik)

I'm a massive bibliophile. Bibliophile is the official word for a 'book lover' (I googled it). My love for books began in the summer of 2010, when I chanced upon a copy of Jeffery Archer's Sons of Fortune.

It was a worn out book with yellow-ish pages and it had the 'old-book-from-the-attic' kind of a smell. I had no hopes from this book, except that I hoped it would help me fall asleep!

But I was in for a massive surprise! That book kept me awake till the next morning. It turned out to be a true page-turner with all the twists and turns that any Jeffery Archer bestseller promises. That evening, I went to a second-hand book store in my vicinity and brought home all his books.

What is the point of my story? Simply this 'Don't judge a book by its cover'. This saying applies to almost every aspect of our life, especially when it comes to judging a mutual fund by the star ratings and returns that it delivers. Even subconsciously, we judge everything at a face value without ever delving into its fundamentals.

This is the precise reason why whenever there is a fall in the market, investors either stop their SIPs or take their investments out, thereby booking a loss. It's the same reason why a majority of us can't get rich. Our psychology is different those that are rich. We buy on euphoria and sell on dysphoria.

[Read: Markets At An All Time High! What Can Mutual Fund Investors Do?]

This trend was clearly visible during the small and mid-cap correction last year.

Table 1: The highs & lows of L&T Midcap Fund

Scheme Name Lowest NAV
(18th Feb 2019)
Highest NAV
(8th Jan 2018)
L&T Midcap Fund 126.8800 162.3400

(Source: Ace MF)

One of PersonalFN's top recommended mid-cap funds, L&T Midcap Fund has an impressive long term track record. It is a fundamentally strong fund, run by distinguished fund managers with an impressive success rate.

But if you were to analyse the fund at face value, you would have realised that the fund had lost around 30% of its Net Asset Value in a span of 45 days. This prompted naïve investors to bid adieu to the fund.

These naïve investors booked their losses and left the volatile world of mid and small cap funds and retreated to the safe haven of FDs or large-cap funds. Big mistake!

The seasoned investors stuck around, keeping their faith because the fundamentals of the fund were strong enough to delay their exodus. The seasoned investors bought more stake in L&T Midcap Fund and made a windfall. Here's how...

Assuming you purchased L&T Midcap Fund on 18 February 2019 at a NAV of 126.88, you would have 788.15 units for a purchase price of Rs 1 Lakh. The value of this Rs 1 Lakh is Rs 1,11,680 today. An absolute return of 12% in just 45 days!

The naive investors lost out on a return of 12% in a span of just 45 days!

Your argument might be, 'this is only because the midcaps have fallen'; hence this case study makes sense.

But we disagree. This is the case with even multi-cap funds. Another one of PersonalFN's top rated multi cap fund is 'Mirae Asset India Equity Fund'. The fund has generated a return of 22.05% in the 10-year period. The story was different in the last one year.

Table 2: The highs & lows of Mirae Asset India Equity Fund

Scheme Name Lowest NAV
(23rd March 2018)
Highest NAV
(8th Jan 2018)
Mirae Asset India Equity Fund 46.4040 54.2840
(Source: Ace MF)

Assuming you purchased Mirae Asset India Equity Fund on 23 March 2018 at a NAV of 46.4040, you would have had 2154.987 units for a purchase price of Rs 1 Lakh. The value of this Rs 1 Lakh is Rs 1,16,981 today. An absolute return of 17% in one year!

[Read: Best Multi-Cap Funds That Could Prove To Be Wealth Multipliers In 2019!]

So, does this hold true for all the mutual funds?

How do you, as an average investor, analyse the fundamentals of a fund?

The truth is that we, investment advisers, don't expect individuals to take the time out and contact fund managers and understand their fundamental approach. An average investor is busy making money and we need to be busy ensuring you create wealth.

It would be a fatal error if we evaluated a scheme just by its quantitative aspects. Like my mom always says, 'Quality is important'. At PersonalFN, prospective clients often ask us, what sets us apart from the online research websites that claim to provide 'valuable research'?

The justification is simple - We study the quality of a fund.

We constantly interact with fund managers and understand their approach while dealing with investors' money. We pay ample attention to the ideologies of the fund house and the manager. In our books the honest approach, to handling investors' money, matters.

PersonalFN's research team has a solid research methodology that helps provide valuable advice to our clients. When you buy any research report from PersonalFN, you can be rest assured that the recommendations aren't provided by just considering the returns, the recommendations are fine-tuned to reflect effective fundamentals of a fund and the ideology of the people managing your money.

Coming back to the important question of how common investors can create wealth. We, at PersonalFN have unearthed certain mutual funds that can provide exponential returns in the long term.

Editor's note:  If you're looking at the best equity mutual funds to invest in 2019 right away, there are five profitable mutual funds with solid growth potential.

This report tells you about five worthy, hidden gems  that can be instrumental in building significant wealth over the next 5-7 years.

​And only for a limited period, you can get this report, click here to know how.

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