Should Falling Markets Trigger Exit From Equity Mutual Funds?

To better understand the right strategy for dealing with mutual funds in a falling market, we conducted research in which we invested Rs 1 lakh using the plus or minus 10 per cent guideline, the buy and hold strategy and the moving average method. Here are the findings.

The stock markets are not in a good place with pressure increasing from unfavourable global cues. From mounting inflation worries to the ongoing confrontation between Russia and Ukraine to increased instances of the corona virus that have resulted in stringent lockdowns across China, things have been going horribly wrong. Even in India, inflationary concerns persist, as does the possibility of the Reserve Bank of India (RBI) hiking key policy rates further at the forthcoming Monetary Policy Committee (MPC) meeting in June 2022. Furthermore, Indian businesses are reporting a mixed bag of quarterly (Q4 2022) results.

If we look at the price trend of Nifty 50, we can see that it has been falling since October 19, 2021. On the same day, it reached an all-time high of 18,604.45, which it attempted twice but failed to attain. Nifty 50 has dropped 12.85 per cent so far, indicating that this is a price correction rather than a time correction. Needless to say, the performance of equity mutual funds suffered as well, as seen in the table below.

As can be seen in the table above, all equity mutual fund categories posted negative returns between October 19, 2021 and May 20, 2022. When the performance of these categories is compared to that of Nifty 500 Total Returns Index (TRI), about 40 per cent have underperformed the Nifty 500 TRI. However, 60 per cent of the equity mutual fund categories have outperformed Nifty 500 TRI.