New Delhi: Belying notions that mutual funds, even the equity ones, are safer than the stock markets, the net asset values (NAVs) of around 300 equity-based mutual funds have fallen on an average by around 14% since 10 January (till the evening of Monday), comparable to the 15% fall in the Sensex, the benchmark index of the Bombay Stock Exchange, in the same period. The Sensex fell by almost 5% on Tuesday. NAVs of the mutual funds were expected later in the evening.
Fund managers say excessive exposure to mid-cap, or stocks with medium market capitalization, is one reason for the sharp decline in NAVs. “Mutual funds have moved in line with the decline of the stock markets because most diversified funds have good exposure to mid-cap,” said Ajay Bagga, chief executive officer of Lotus India Asset Management Co. Pvt. Ltd.
There was no real difference between the best- and worst-performing equity funds. The 20 worst-performing schemes lost an average 18% over the last 11 days, while the top 20 schemes lost 9.7%.
“Funds have fallen reacting to the decline of their underlying assets. We, however, see it as a buying opportunity,” said Sandesh Kirkire, CEO of Kotak Mahindra Asset Management Co. Ltd.
That’s a view shared by Bagga and a few other fund managers, especially those armed with cash from new fund offerings. “We have cash holdings of around 8-10% of the fund size and, in the last two days, have invested a substantial part of it in the stock markets. This should be seen as a good opportunity by retail investors to re-enter the markets at lower levels,” said Bagga.
However, not all fund houses see every decline as a buying opportunity. “We invest as and when money comes in from new offerings and do not wait for the slowdown of the markets,” said Nilesh Shah, chief investment officer of ICICI Prudential Asset Management Co. Ltd. He says, in 2007, the fund selected stocks based on their growth potential. This year, he said, it would select them on the basis of their fundamentals.