personal finance

Don’t dump mid cap mutual funds because of short-term underperformance, say advisors

Mid cap mutual fund investors are concerned about the dismal performance of their schemes. Many of them are contemplating selling their investments, say mutual fund advisors. The mid cap mutual fund category has been down -14.61 per cent in the last one year. According to most mutual fund advisors, investors should ignore the short-term performance of these schemes and stick to their investment plans as the category still has the potential to offer superior returns over along period.

“Many investors are calling me to check about their mutual fund investments. Even some direct investors who are not my clients have reached out to me asking about the performance of mid cap schemes,”says Puneet Oberoi, Founder, Excellent Investment Advisorz

Mutual fund advisors say that investors should not focus on the category average returns as it will not offer them the correct picture. Many mutual fund investors have a habit of looking at the category average when they calculate their returns. Experts suggest that investors should rather look at their portfolios.

“If one website shows that mid cap schemes are offering -20 per cent returns, they are speaking about the average of all the schemes in that category which also has laggards. Look at the returns in your portfolio or track your scheme since you started investing. Most investors won’t be in negative territory,” says Puneet Oberoi.

Except for four schemes, all the mid cap mutual fund schemes are offering positive returns in three years. The topper in the category, Axis Midcap Fund, is returning 10.85 per cent returns in three years. “Investors who started investing in 2016 earned more than 40 per cent returns in one year. The loss of 14 per cent will not make their portfolio negative. So, my suggestion stop hyperventilating and comparing your annual returns with bank FDs,” says Karthik Swaminathan, a Mumbai-based financial planner.

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Experts like Swaminathan also points out that mid cap schemes are still among the toppers in 10-year returns chart. The average 10-year return of the mid cap mutual fund category is 14.72 per cent. The toppers in the category are offering around 18 per cent average return in 10 years and 13.74 per cent average return in five years.

“We cannot write off the category because of short-term underperformance. See, the recent economic slowdown has impacted mid caps badly. However, government’s plans to revive the market will definitely be positive for the segment. The valuations have become really attractive and whenever the market turns around, these schemes will come back very strongly,” says Karthik Swaminathan.

Mutual fund advisors reiterate that investors with long-term goals need not worry about the low returns in the short term. However, they also say that if you can’t take the low returns and volatility in six months, you are probably investing in the wrong asset class. “Only investors who have started investing in the last six months to one year ago would have got negative returns from their mid cap schemes. One year is too short a horizon to judge your scheme’s performance. Still, if you feel you are not up for this volatility, I believe you should switch to a less risky asset class and settle for lower returns,” advises Puneet Oberoi.


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