Reference Auto

The week started on a bad note for the markets and the BSE Sensex plummeted to its lowest in two months, plunging by 2 per cent, and there doesn’t seem to be a cure for the stagnating effect of the markets on mutual funds, whose golden days seem to be over.

The biggest sufferers have been equity and tax-saving mutual fund owners.

The Sensex has been moving in a range-bound manner in the last four to five years with the highest being around 21,000 points and the lowest 16,000 points.

Of course, during the global downturn in 2008, it plunged to less than 8,000 points. (Those who invested in funds then got almost double the amount in just two years).

So, a mutual fund subscriber, who has invested in a scheme, say four years ago, will probably not get an interest of more than 10 per cent (that is, on the best performing ones).

The scenario was diametrically opposite during the 2001-2007 period. In 2001, the Sensex’s lowest was around 2,500 points. In 2007, the Sensex peaked to over 20,000 points. That is, almost eight times!

So investors, who held good stocks in 2001 to 2007, raked in the moolah in a big way.

Moreover, even mutual fund investors saw cash registers ring. People who astutely picked funds in 2001 were able to sell them for almost 10 times the amount in 2007.

For instance, if someone invested Rs 1 lakh in 2001 in funds like Birla Mutual Fund tax scheme, he would have made a neat Rs 10 lakh in 2007. But if he held it for even a couple of years more, he would have got say Rs 7 to 8 lakh.

So, it must be baffling. How come someone who invested Rs 1 lakh gets Rs 10 lakh in 2007, and may be Rs 7 lakh in 2010?

That’s because mutual funds move proportionately with indices like the Sensex. From 2002 to 2007, the Sensex rose eight times. So, the returns from funds were also more.

But from 2000 to 2010 (which is a longer period), the Sensex moved up from 3,500 points to 20,000 points, which is six times higher. Despite being a longer period, return from mutual funds was less.

But these returns are a distant dream now, and despite mutual fund firms and their agents trying to give a fillip to schemes, it is unlikely that one will make even one fifth of the earnings made in 2001-2007.

So, the golden days for mutual funds seem to be over unless we see the Sensex (which is hovering around the 17,000 points-mark for almost a year) rebound like never before and surpass the 35,000 points-mark at least but that does not seem likely even in the medium term.