It has been a year since the SEBI-mandated categorization exercise first began. The dust from the changes made by AMCs has since settled and there is more clarity now on fund strategies and performance post change. The slide in equity markets also threw more light on funds’ ability to perform in tough times, especially in the mid and smallcap space. The debt market crisis showed up funds’ risk-mitigating strategies and the complexity in debt structures. With lessons learnt from all this, we have tightened the reins on what should be in our Select List.
We always explain what you should do with your SIPs and investments in funds we remove from the Select List. In order to provide a clearer picture and one you can easily refer to, we’re creating a new list from this review onwards. This is the Select Funds – On Hold list. This list houses funds we remove from the Select Funds List, but which can continue to be a part of your portfolio if you have invested in them. You can stop SIPs in these funds and refrain from fresh or additional investments. Hold investments made so far.
This is because the fund could be going through a phase of underperformance and recover. Hence, we would give it time before taking a further call. We will keep you posted through our quarterly calls on any exit from this list.
By stopping SIPs and holding, you would be doing two things. One – mitigate risk by avoiding further investments in underperforming funds. Two – giving your funds time to recover and avoid exits at a lower return level. You would also avoid excessive churn, exit loads, and needless taxes.
Equity markets staged a rapid comeback in March, thanks to a massive foreign institutional inflow on the backs of a buoyant global market and perceived political stability in the domestic market. While funds are still struggling to beat their benchmarks, for reasons we have explained in earlier reviews, the gap by which they trail the indices has been narrowing. Some funds that were earlier lagging the index have pushed past and are now beating their benchmarks.
In debt markets, the spike in short-term yields caused by liquidity squeeze in the December quarter eased. Rising bond prices from rate cut expectations and rate cuts helped funds improve their sluggish 2018 returns. But we prefer to remain cautious on duration, given the volatility in bond yields that we’ve seen in 2017-2018 and the shortening rate cycles.
As a FundsIndia investor, you would have received an email detailing the changes to the Select Funds List and the rationale for the same.