Pandemic-Led Performance Of Mutual Funds

The following report, with graphical presentations, displays the one-year performance of mutual funds since the pandemic shook the world.

As in normal life, even in finance the facts are sometime more fictitious than fiction itself. In the first quarter of last year we saw a halt in trading of the India equity market twice due to fall in indices by more than 10 per cent on the back of lockdown necessitated by the spread of the corona virus. Imagine if an analyst had predicted at that time: “Cheers everyone, this is not a time to worry. Within a year the equity indices will be double from here. The broader market that had been struggling for the last couple of years will become more exciting and will more than double and Rs102 lakh crore of wealth will be generated within a span of one year.”

And what if the analyst had added: “Moreover, it will be one of the best years for those equity investors who have remained patient. What years of investor awareness programmes (IAPs) could not achieve, this lockdown will achieve in a few months. A record number of dematerialisation accounts will be opened in the first three months of the lockdown and retail investors will be in the driver’s seat.” Such an analyst would have been laughed out and probably someone would have even asked him to seek medical advice. But this is what exactly happened in the next one year. Here, we will try to capture all that happened in the last 12 months through the charts and take a look at how the mutual funds performed.

The sharp recovery that we saw is not the sharpest one in the history of the Indian equity market. We have seen this earlier during 1990-91 when the Sensex fell by 39 per cent within 46 days and recouped its losses within 109 days.

All the broader categories of mutual funds have witnessed a rise in the asset under management (AUM) since the start of April 2020. Even the equity-dedicated MFs saw an increase in AUM despite eight out of 11 months witnessing a net outflow. What helped the gain in the AUM is a rise in the equity market that more than off-set the loss that we saw from the outflow. 

All the equity categories generated huge returns. However, it was the small-cap dedicated funds that stole the show with the funds’ NAV rising by more than two times.

The rise in the equity market has also helped aggressive hybrid funds with higher weightage of equity.

A sub-category of debt MF was again in turmoil for a couple of months after shutting down of six funds of a MF house. Nonetheless, other sub-categories performed as per expectation and the rise in yield in the last couple of months has taken away some of the sheen from the long-duration bond funds.

One year of the corona virus-triggered crash has once again reinforced the metaphor that it is the time in the market which is important and not the timing.

"The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."

- Sir John Templeton