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Nifty and Sensex are at an ALL TIME high but my Mutual Fund Lump Sum and SIP investments are not doing too well

Almost all Mutual fund investors across India have the same question at the top of their mind. Let’s break this down and bring out the truth behind this.

Fact Number 1

Nifty and Sensex indices are made up of just 50 and 30 largest stocks respectively. On the other hand, there are more than 2,500 public listed companies in India. More than 500 are actively traded every day. Nifty/Sensex going up means that the shares of largest companies in India have gone up on an aggregate basis. This could also mean that while some stocks in this index could have done well, the others might not have performed.

A little investigation into the rising Nifty / Sensex tells that this rally in Nifty/Sensex has been in a handful of stocks. Only the Top 10 stocks in the Nifty index have contributed 94% of all the gains. This means that the rest of the 40 stocks have either not performed very well or some have actually gone down in the last one year (20 stocks in the 50 stock index have given negative returns in the last one year).

 

 

Fact number 2

While Nifty and Sensex have made all-time highs, the Mid Cap and the Small Cap indices are currently 13% and 18% below their highs which were hit in the January 2018. The markets have been volatile on account of the impending elections in India, the rise in crude oil prices and the threat of trade wars between the US and China/Europe etc.

The current underperformance of Top Mutual Funds

Due to the two reasons which are given above, many mutual funds have not performed as well as the Nifty or Sensex index recently. Mutual funds invest in a wide range of stocks for optimum diversification and potential long-term wealth creation. The composition of these funds is different from Nifty and Sensex. Many of them have also invested in small and mid cap stocks which have seen some correction in the recent past. We expect this to be a temporary phase and expect the broad market to recover in time. Top Mutual Funds in India have been consistently over performing the broad based indices like Nifty and Sensex. Over the last 20 years, the top mutual funds have given 20%-25% annualized returns while the SENSEX and NIFTY have given only 12%.  We expect this trend to continue and we are monitoring the markets closely.

Long term returns from mutual funds vs SENSEX/NIFTY

In the table below, we compare long term performance from SENSEX/NIFTY vs top mutual funds running for more than 20 years.

Fund/IndexInception DateAsset Size (AUM)Returns for last 20 years (%)*Worth of ₹5,000 SIP since the last 20 years
Franklin India Prima FundNovember 30, 19936,602 Cr25.65%1.89 Cr
Reliance Growth FundOctober 8, 19956,873 Cr25.16%1.72 Cr
Aditya Birla Sun Life Tax Relief 96 FundMarch 29, 19966,102 Cr24.20%1.22 Cr
NIFTY*--12.00%45 lakh
SENSEX*--12.10%46 lakh

*These returns are the point to point (lumpsum) annualized returns

**SIP returns for SENSEX/NIFTY have been calculated based on trailing 20-year returns

 

What should I do with my running SIPs or lump sum Investments? Should I Stop/Pause my SIPs?

Investments in Equity Mutual Funds through either SIP or Lump Sum should be done with a long term view.

As we can see in this study done by CRISIL/Mint, the longer your SIP investment period, the probability of negative returns from the equity investments becomes smaller. In my opinion, run your SIPs for at least 5 years. Do not stop or pause your SIPs if the markets undergo a correction. Do not panic, one would only be buying more units at a lower price when the markets are down.

 

 

Do I need to change my funds and move to funds which have done better?

Upwardly.in does extensive research before it recommends any fund. We also continue to monitor the performance of all funds and your investments in them. When we feel that there is better fund to invest, we would reach out to you and let you know. With a click of a button, you would be able to either switch your SIP into the new fund or move your investments from one fund to another. But remember, mutual fund investments in equity MFs are supposed to be done with a long-term view. We all need have the patience to ride these ups and downs of the markets. So keep the faith and continue on your path of Equity MF investments.

I would also recommend that you go through our blogs on Equity MF investing.

My SIP is underperforming for the last 3 months. Should I stop SIP?

https://www.upwardly.in/blog/when-to-stop-underperforming-sip/

Investing in Equity Markets like a Pro — tips for negotiating uncertainty

https://www.upwardly.in/blog/investing-equity-markets-pro-tips/

Should I invest now in mutual funds now?

https://www.upwardly.in/blog/invest-now-mutual-funds-stock-markets/

Please do reach out to us if you have any queries. You can email us at hello@upwardly.in or call us at     + 91 – 73377 40002

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