personal finance

Expect 10-12% returns from mid, smallcap mutual funds


The stock market is taking a breather. After the run-up in the last few months, the market is marginally down for the second consecutive day. Most equity mutual fund categories have started to show the signs of revival during the recent rally. What is in store for equity mutual fund investors?

“I think the worst is behind us but investors should expect some volatility in the future. The markets running up are on the back of three to four stocks. It is not necessary that funds hold them in their portfolio. Even if they do, they will not make a huge chunk. So, we can’t expect the returns to be in sync with the market rally,” says Jimmy Patel, Managing Director and CEO, Quantum Mutual Fund.

The BSE Sensex has gained nearly 14 per cent this year and hit a lifetime high of 38,989, last week. The NSE Nifty also went past 10,700 and is expected to breach the 10,800 mark soon. On the mutual fund side, the largecap schemes have returned 3.14 in the last one month, the midcap schemes are offering 3.34 per cent in one month and the smallcap schemes are also out of the negative zone with 2.95 per cent in one month.

However, fund managers believe that the return expectations from equity funds, especially mid- and small-cap schemes should be tempered down. “The equity schemes in general and mid and smallcap schemes in particular have rewarded the investors well in the last couple of years. So, investors shouldn’t have similar expectations from them going forward. But, if you have a medium-term horizon, you should use this time to build a portfolio in small and midcaps,” says Gopal Agrawal, senior vice president- investments, DSP Investment Managers.

The midcap and smallcap schemes returned 28.78 per cent and 30.24 per cent in the last five years. Multicap schemes offered 22.33 per cent and largecap schemes gave 18.37 per cent in five years. Even after Nifty breaching the 11,700 mark, the NIFTY Smallcap100 Index has offered -3.08 per cent returns and the NIFTY Midcap 100 Index has returned 6.22 per cent in a year.

“The equity schemes, mainly the mid- and small-cap schemes, have already given massive returns to investors in the last couple of years. It will be better to lower down your expectations from them in the future. We expect the returns to be lower than 10-12 per cent annually,” says Patel.





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