As it is said Mutual Fund is subject to market risk, many of us might have faced the substantial losses in mutual funds too. This article aims to pinpoint some issues, which could be the reason behind your losses. And most important, how one should move forward with today’s given environment.
While investing in mutual funds, the broad categorization is large cap, mid cap and small cap funds. The mid and small cap mutual funds gave a historic return from Oct-16 to Jan-18. But all these gains got wiped out in the past one and half year. The below table summarizes the saga.
|Index Value||P/E multiple|
% Gain left
|% Gain wiped out|| |
|Nifty Midcap 100||16071.1||21719.2||35.1||17566.4||9.30||25.84||54.22||32.51|
|Nifty Smallcap 100||6460.65||9565.85||48.1||6467.55||0.11||47.95||111.31||29.47|
|Nifty Smallcap 250||5178.46||7554.46||45.9||5328.25||2.89||42.99||97.38||33.48|
|Nifty MidSmallcap 400||5255.98||7486.29||42.4||5954.05||13.28||29.15||66.54||33.64|
This is the given fact for all of us. The small and mid-cap indices are trading at 52-week lows. These lower indices are suggestive of attractive valuation too. This reasonable valuation is truly reflected by lower P/E multiple shown in above table.
One may check his portfolio constitution to get clues of the losses suffered.
To get an indication of the way forward, one may compare 12 months forward P/E of Midcaps vs Nifty. Nifty forward P/E is range bound between 16-22 from last five years and currently at 19x level. On the other side Midcap P/E made new highs during the upward cycle and touched 30x levels. Currently, 12 months forward Midcap P/E is oscillating at near par with Nifty forward P/E for last 6 months.
The market is and will always be prone to business cycles, uptrends, highs and lows. Our country has always witnessed wonderful post-election rallies across all the segments. The decisive results of current elections will propel India to the next growth orbit. It’s the right time to add mid-cap funds to generate double-digit returns in your portfolio in the long term.