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Sensex mayhem causes mutual funds crash

business Updated:
Vyas Mohan
Highlight Story

The markets have yet again taken investors for a ride. Even the so-called safe investment havens – the mutual funds – have taken a pretty bad blow in the carnage with their net asset values (NAVs) dipping in the range of 3 per cent to 24 per cent in the one-month period.

The fall has been a broad-based one with the Sensex once again tricking those aggressive growth-oriented schemes. While the Sensex lost 12.30 per cent in the one-month period, investors of these schemes have witnessed a fall in their NAVs in the range of 12.80 per cent to 16.12 per cent.

Under the given circumstances, investors should hold on tight and wait for a pullback rally to sell these units and relocate the money to growth-oriented mid cap funds, which have a better upside from now, say market experts.

“This is what has been observed historically. Mid caps as an asset class have under performed over the last few months. In a fresh bull run, the frontline stocks will be the first to perform and then the money moves into mid caps,” says Deepak Jasani, head of retail research of HDFC Securities.

While the BSE mid cap index has corrected by 15.57% from its month-ago levels, some of the high-growth mid cap fund schemes have seen their NAVs erode by 11.11 per cent to 20.9 per cent. Further, mid caps as an asset class have not actively participated in the recent bull run.

As the Sensex grew 45 per cent from 10,071.42 points in June 2006 to hit an all-time high of 14,652.09 points on February 8, 2007, the BSE Mid cap index gained only 23.7 per cent in the same period.

Theoretically in a fresh impulsive move, the frontlines stocks are the first to move and when they get sluggish, money flows into mid cap shares as they look cheaper.

“It has been proven time and again that in any bounce back, bluechip stocks are the first to rise. Investors should look for an opportunity to get out of these funds and enter mid caps. Because once the markets consolidate and resume its northward journey, mid cap funds are going to give a higher rate of return,” said a fund manager of a prominent fund house who wished not to be named.