Top Equity Mutual Funds Underperform: Investor Should Know?

Over the last year, many investors in equity Mutual Funds have been disappointed, as many popular schemes have shown low growth. The excitement around equity markets from previous years has given way to a more alert outlook. In fact, while benchmark indices like the Nifty 50 and Sensex remained flat and unchanged, small-cap stocks underperformed.

Factors Affecting Equity Mutual Fund Performance

There are many reasons why equity mutual funds underperformed over the past year:

1. Muted Corporate Earnings Growth: Many companies face slow earnings growth, which impacts the overall performance of funds invested in them.
2. Slowdown in Consumption: With declining consumer spending, companies that rely on consumption faced difficulties.
3. Global Crisis: US tariffs and potential trade wars have added to the market’s instability, causing unexpected results.
4. Geopolitical Stress: Uncertainty in global politics created volatility in the stock market, affecting mutual fund performance.

These factors and a major outflow of foreign capital led to market corrections, though domestic buyers did their best to relieve.

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The 3 Worst Performing Mutual Funds

Mainly, schemes underperformed compared to their benchmarks. Let us take a look at the three worst performers based on 1-year rolling returns:

1. Samco Flexi Cap Fund

• 1-Year Return: -5.26%
• Performance: This fund invested in a compact portfolio of around 25 stocks. It failed to perform, with a high loss compared to the Nifty 500 index, which gained 13.47%. The fund’s high turnover ratio and sector concentration in finance, consumption and chemicals might have contributed to its poor performance.

1. Quant Multi Cap Fund

• 1-Year Return: 4.93%
• Performance: Even using a momentum-based strategy, the Quant Multi Cap Fund only posted a modest 4.93% return over the year, well below the Nifty 500 Multicap index, which gained 14.35%. High turnover and exposure to sectors like FMCG and healthcare did not yield the expected results.

2. Shriram Flexi Cap Fund

• 1-Year Return: 6.28%
• Performance: This fund, which combines growth and value style investing, showed a low return of 6.28% against the benchmark’s 13.47%. The fund’s high exposure to banking and finance stocks and a 500-800% portfolio turnover ratio may have contributed to the underperformance.

What Should Investors Do?

These funds underperformed in the short term, it is important to remember that markets are cyclical. Bearish phases are often followed by bullish periods. Factors like GST reforms, the festive season and lower inflation could bring back the market growth.

As an investor, do not panic over short-term losses due to market swings. However, if a fund underperforms its benchmark and peers, it may be time to renew your choices. Reviewing your mutual fund portfolio will help you decide whether to rebalance or replace underperforming funds with better options.

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Conclusion

In conclusion, while some equity mutual funds have struggled in the past year, the market may recover quickly. By staying informed and regularly tracking your investments, you can make smarter decisions and keep your financial goals on track.