The situation is the same for small-cap mutual funds and other funds. Because they, like all financial instruments, are dependent on market phenomena for their profitability, and so cannot function independently, this is why the small cap mutual funds, or any other fund, have similar results. If the market is not favorable to investors, even mid-cap mutual funds can sometimes falter.
Recent reports and reactions have shown that investors are unhappy with the returns of their small-cap mutual funds. This may be disappointing for investors but it doesn’t mean you should stop investing or let your money sit in banks.
A little bit more planning and optimism in the market can help you to regain market share and make lucrative returns in near future. Investor sentiment can be hurt by the fact that even mid-cap mutual funds might not perform as expected.
The question is: What exactly drives these negative returns in today’s investment environment?
Before you lose all hope, it is important to understand the factors that affect your investments. This will allow you to take corrective actions quickly and make profits.
We will discuss the main reasons small-cap mutual funds, and other funds, may perform poorly. Then we’ll tell you what actions you can take in order to reverse or mitigate these losses.
Factors that Drive Negative Returns
Based on Past Performance
To better gauge the performance of small and mid-cap mutual funds, one of the most important methods for selecting them is to track their past records. The question is, however, how far should you go to learn about the performance of a small-cap mutual fund’s past record? A large portion of investors make the error of looking at the last 6-8 months of a mutual funds and relying on that information when making a purchase decision. This is a flawed approach. You should review the past records of mutual funds, ranging from 6-8 years, to see how they have survived and whether you would be able to invest in them.
Expenses
It is also important to determine how much you are willing to pay for the investment. The average mutual fund company charges investors a half to two percent for commissions and fund management expenses. you can invest your money. Some funds have a recurring payment, while others may only pay one time. Both small cap and mid-cap mutual funds have different expense ratios. It may not be difficult to spend these expenses if you have invested in equities. The returns on equities are incredible after a period. If you’ve invested in debt instruments, these expenses will only impact your overall returns and reduce your profits. Always choose wisely.
Market Volatility
This is an important consideration when buying mid-cap mutual funds. It is important to understand that market fluctuations, such as inflation, rise in interest rates, recession or other market attributes, directly affect the growth of mutual funds. But, investing over the long-term should balance out such losses as market uncertainties can be well covered over a time period. You might consider reevaluating your portfolio during bearish periods in the market for small and midcap mutual funds.
Fund Manager
Fund managers may not be equally knowledgeable and experienced. Your fund manager’s abilities are crucial to the success of small and mid-cap mutual funds. He/she will be the one who gauges market sentiment and invests accordingly. You will be able to easily determine whether you want to invest in a fund or not by knowing the background of your fund manager.
Fund Type
Your financial goals and objectives should be reflected in the fund type you choose, whether it is small or mid-cap mutual funds. You should not invest in a fund just because your peers have invested in it. If you have short-term goals, such as purchasing a car or house, then invest in a small-cap mutual fund.
You might be able to make regular income by investing in mid-cap mutual funds.
You could make grave investment mistakes if you make a mistake in selecting the right fund.
Taxation
If your primary goal of investing in mid-cap mutual funds is to avoid large tax payments, look for funds that allow you to deduct income under Section 80C, the Income Tax Act of 1961. Although not all funds in this category will give you the best returns, they may be able to help you avoid the huge tax burden. Find out which mid-cap mutual funds are the best and what tax rates and deductions may apply to them.
What to do in the Event of Negative Returns?
If your small-cap mutual funds or your mid-cap mutual funds are not performing well, there are two options:
- You should be patient if you have been investing for a long time. The market won’t stay low forever. This might only be temporary and you may still have the chance to redeem higher returns if you withdraw from your fund.
- If you are not getting enough returns from your fund, you can exit it. Learn about the exit cost if you withdraw within the stipulated lock-in period.
- For good returns, you can invest your money in small-cap mutual funds and disinvest in one mutual fund.
Bottomline
Financial investment is not without its ups and downs. Don’t worry about a possible fallout. Get sound financial advice to help you make wise financial decisions and earn profitable returns from small- and medium-cap mutual funds, thus covering any losses.