The year 2018 is known for the high degree of volatility and multiple events that occured in the Indian market.

Mutual Funds That Might Not Be Worthwhile in 2019 - At a Glance
Fund Name 1Y 3Y 5Y Expense Ratio Turnover Ratio Category Risk
HSBC Infrastructure Equity Fund - Direct - Growth -24.89% 6.48% 12.9% 2.14% 19% Equity
(Sectoral/Thematic)
High
Sundaram Small Cap Fund - Direct - Growth -17% 11.66% 22.07% 1.4% 18% Equity
(Small Cap)
Moderately High
Indiabulls Value Discovery Fund - Direct - Growth -11.64% 10.04% NA 1.79% 91% Equity
(Value)
Moderately High
Reliance Vision - Direct - Growth -7.61% 10.02% 13.66% 1.56% 124% Equity
(Large & Mid Cap)
Moderately High

 Performance in Early 2018

The market started the year on a positive note with January gaining 5% month-on-month due to the government announcing a cut in its additional borrowing plan for the current fiscal.

However, selling pressure mounted on the small and mid-cap space during the close of the month given the uncertainty around the budget.

As we advanced in February 2018, the indices (BSE Sensex and NSE Nifty50) fell by nearly 5%. The fall started with reintroduction of Long Term Capital Gain (LTCG) Tax announced during the budget.

The fall multiplied on account of global cues where the US Fed chair hinted on raising the interest rate and India’s second-largest public-sector bank, Punjab National Bank reported bank fraud worth USD 1.7 by India’s top diamond merchant Mr. Nirav Modi.

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Going forward, the Indian market continued to witness selling pressure as the global trade war intensified and political instability risk mounted domestically.

Sentiments also weakened when the Reserve Bank of India (RBI) barred banks from issuing Letters of Undertaking.

 Performance in Mid-2018

Mid-year, the market witnessed a trend reversal on account of receding worries about the trade tensions between the US and China after positive comments from Chinese premier.

Also, the government won the trust vote with a much higher margin than anticipated helped the domestic investors re-gain lost confidence.

 Performance in End 2018

However, the cheer did not last long as starting September; the market began to witness a correction again as the investor’s sentiments dented with the sharp decline in rupee against US dollar.

As the month progressed, a sell-off was sparked in financial firms after a non-banking financial company (NBFC) defaulted on interest payment of its commercial papers.

Further, October remained one of the worst months in the history of the Indian market with the market discounting the default of the NBFC.

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While November started on a positive note with the Samvat 2075 inculcating fresh buying in the market, it did not last long due to rout in global equities.

Thus, we saw entire year remained highly volatile and was surrounded by events – both globally and domestically.

In this blog, we seek to discuss regarding some of the funds that may not be worthwhile for 2019 owing to a sharp decline in their performance in 2018.

Read on!

1.HSBC Infrastructure Equity Fund

The fund seeks to generate long-term capital appreciation by investing in an actively managed portfolio of equity and equity-related securities.

The fund aims to invest in companies that could get the benefit from growth and development of infrastructure in India.

What has happened?

While the fund’s 3-year and 5-year returns have been better than the benchmark, the one year return has been considerably low when compared to the benchmark and category average.

This fall is primarily due to over 50% allocation to the small-cap segment against nearly 25% category average and 2% benchmark. The sharp correction in the segment has led to a sharp fall in the fund’s performance for the year.

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Also, the fund has an asset under management of less than Rs 500 crores which is considered as low thereby amplifying the risk level. Thus, the risk-adjusted returns for the fund are lower when compared to the category average.

2.HDFC Infrastructure Fund

HDFC Infrastructure fund seeks to invest in companies that are engaged in infrastructure sector or are expected to benefit from the growth and development of the infrastructure sector in India.

The fund could also invest up to one-third of its corpus in non-infrastructure related companies. The fund aims to remain market cap agnostic.

Source: Groww

What has happened?

While the fund’s 3-year and 5-year returns have been better than the benchmark, the one year return has been considerably low when compared to the benchmark and category average.

This fall is primarily due to over 55% allocation to the mid-cap and the small-cap segment. The sharp correction in the segment has led to a sharp fall in the fund’s performance for the year.

Also, the fund has a considerably high risk (measured by standard deviation) when compared to its benchmark and a high beta of 1.24 indicating aggressive bets. The fund has lower risk-adjusted return when compared to the category average.

3.Sundaram Small Cap Fund

The fund seeks to provide capital appreciation by investing in a diversified portfolio of small-cap stocks.

Source: Groww

What has happened?

While the five-year return has been high, the fund has not performed as per the expectation over the past couple of years mainly last one year.

The fund has seen a sharp decline in performance in 2018 due to correction in the small-cap segment. The fund accounts for nearly 95% allocation to small-cap segment against the category average of 65%.

Thus, the risk tends to increase which results in lowering risk-adjusted returns when compared to the category average.

While the fund has a balanced nature with a beta of 1, the top 10 stocks account for nearly 35% of the portfolio which is marginally high. Also, the fund has a low track record of less than five years.

4.Indiabulls Value Discovery Fund

The fund seeks to generate capital appreciation by investing in a portfolio of equity and equity-related securities.

The securities are of companies that meet the value criteria and are within the Top 500 companies by market capitalization. A company has high relative value if both RoCE and earnings yield is high.

Source: Groww

What has happened?

The fund has underperformed over the multi-trailing period. It has also witnessed a sharp decline in performance in 2018 due to correction in the small-cap segment.

The fund accounts for nearly 48% allocation to small-cap segment against the category average of 15%. Thus, the risk tends to increase which results in lowering risk-adjusted returns when compared to the category average.

Also, the fund has a low track record of less than five years.

5.Reliance Vision Fund

The fund seeks to generate capital appreciation by investing in large stocks. The fund seeks to scout for stocks that are fundamentally good with bright long-term prospects.

Source: Groww

What has happened?

The five-year return has been high, but it has not performed over the past few years mainly one year. The fund has seen a sharp decline in performance in 2018 due to correction in the small-cap segment.

The fund accounts for nearly 46% allocation to small-cap segment against the category average of 40%. Thus, the risk tends to increase which results in lowering risk-adjusted returns when compared to the category average.

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The fund has a balanced nature with a beta of 0.97. However, the top 10 stocks account for nearly 61% of the portfolio which is high.

6.SBI Contra Fund

The fund seeks to provide long-term capital appreciation by investing in a diversified portfolio of equity and equity-related securities. The fund adopts a contrarian investment strategy.

What has happened?

The scheme has underperformed over the multi-trailing period. It has also witnessed a sharp decline in performance in 2018 due to correction in the small-cap segment.

The fund accounts for nearly 51% allocation to mid-cap and small-cap segment against the category average of 40%. Thus, the risk tends to increase which results in lowering risk-adjusted returns when compared to the category average. 

Please note, we have selected the funds based on multiple criteria such as returns during 2018 against category average, rank within the category, assets under management, expense ratio.

In Conclusion

Well, we always speak about what can be the best funds for you to invest in. But we hope that this post has helped you understand the market trend and make cautious decisions about your investment.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww