These Mutual Funds that Lost 20-22% in 6 Months; Should Investors Buy or Avoid?

Investing in equity mutual funds can be very risky, and recent market trends have led some funds to fall. Over the last six months, some equity mutual funds have fallen by 20% to 22%, prompting investors to wonder whether to purchase, hold, or stay away from them. In this article we’ll discuss about the performance of 10 mutual funds that fell down sharply. We’ll classify them according to investment strategies, and learn whether they offer a good investment opportunity or not.

Stock Market Trends for the Past Six Months

The Indian share market has seen corrections in the last four to five months. In this time, over 10 equity mutual funds (excluding ETFs) have dropped by more than 20%. Some investors believe this is a time for buying as market corrections give them an opportunity to invest at discounted prices. But proper analysis is needed to prevent investing in weak-performing funds.

10 Mutual Funds That Fell 20-22% in the Past Six Months

1. Index Fund

Bandhan Nifty Alpha 50 Index Fund (-22.88%)

The fund follows the Nifty Alpha 50 Index, which include stocks that have given higher returns in the past. Though such funds tend to do well in strong market but falls when market conditions slow down.

Should Investors Consider It?

• This is a high risk investment and suitable for only those investors who can handle it.
• Stable investors might prefer large-cap mutual funds, which have yielded more than 13% average returns in the last decade.
• Conservative investors should not choose it.
• Volatility-tolerant long-term investors might consider it.

2. Infrastructure Mutual Funds

Tata Infrastructure Fund (-22.66%) and Bandhan Infrastructure Fund (-20.59%)

Infrastructure funds invest in entities engaged in construction, power, roads, and utilities. These sectors rely on government policies, economic conditions, and availability of funds.

Why It’s Fallen?

• Increased interest rates impacting infrastructure projects.
• Lower government expenditure due to fiscal issues.

Is It Worth Considering for Investors?

• Only appropriate for investors looking at India’s infrastructure development with a long-term perspective.
• Short-term oscillations are expected.

3. Defence Mutual Funds

Motilal Oswal Nifty India Defence Index Fund (-22.64%) and HDFC Defence Fund (-20.18%)

Defence sector funds also became popular during 2023 as a result of rising defence expenditure and the government’s move towards self-reliance policies.

Reasons for the Decline

• Shares in the industry became overpriced following a sudden upsurge.
• Investors took profit, hence the correction.

Is It Worth Considering for Investors?

• Very risky because of the volatility in the sector.
• Investors who missed the previous rally might prefer investing via SIPs rather than lump sums.
• Conservative investors should not consider it.

4. Special Opportunities Fund

Samco Special Opportunities Fund (-22.46%)

This fund invests in special and underpriced investment opportunities, which may be volatile.

Should Investors Consider It?

• Not suitable for those who like low-risk investments.
• Suitable only for investors who are familiar with market cycles and can accept fluctuations.

5. PSU Mutual Funds

Quant PSU Fund (-22.03%), Kotak BSE PSU Index Fund (-21.35%) and Invesco India PSU Equity Fund (-20.26%)

PSU funds are invested in government-owned firms in banking, energy, and defence sectors.

Reasons For the Decline

• PSU shares are very volatile and are influenced by government policy.
• Following a good rally in 2023, many investors offloaded the stocks.

Should Investors Invest In It?

• For believers in the long-term prospects of PSUs alone.
• Investors must be prepared for unexpected market slides because of policy shifts.

6. Energy Mutual Funds

SBI Energy Opportunities Fund (-21.19%)

The fund invests in companies related to energy, such as oil, gas, and renewable energy companies.

Reasons for the Decline

• Global crude oil prices have been fluctuating.
• There is uncertainty regarding renewable energy policies.

Should Investors Consider It?

• Suitable for those investing for the long term.
• The sector is cyclical, making it risky for short-term investors.

7. Flexi Cap Fund

Samco Flexi Cap Fund (-20.45%)

Flexi Cap funds invest in large-cap, mid-cap, and small-cap stocks.

Causes of the Decline

• Recent months have been poor for mid-cap and small-cap stocks.
• The fund manager’s strategy might not be working in the present market scenario.

An observation of Flexi Cap mutual funds in the last six months reveals that the majority of them have returned +5% to -20%, with this one being the loser.

Is It Worth the Consideration?

• Investors need to monitor the fund’s future performance before they invest.
• Diversified large-cap funds could be a better option for stability.

These Mutual Funds are even worth Investing?

Investors should be careful before investing in these funds just because their prices have fallen sharply.

• Infrastructure, PSU, and energy funds may recover in the long run but are likely to continue being volatile.
• Defence funds were overhyped at one point and have now taken a break, so their future trend is uncertain.
• Flexi Cap and Special Opportunities funds must demonstrate steadiness before they can be good investment opportunities.

For high-risk tolerant long-term investors, SIPs can prove to be a superior method compared to lump sum investment. One must evaluate risk tolerance, investment horizon, and financial objectives before investing.