The Small- And Mid-Cap Funds That Protected Your Money During Monday's Market Rout
Actively managed funds need to both be able to beat the benchmarks during bull runs, and also be able to hedge against drastic losses when the broader markets are choppy.
Movements in the global markets triggered a sharp correction in the domestic market on August 5. The Nifty had declined as much as 3.33% to 23,893.70, and the Sensex slumped 3.32% to 78,295.86, the lowest levels since June 4.
The overarching global cue for the crash was the drop in US bond yields. The global market reaction to this was further driven by the hike in interest that narrowed the ease of carry trade.
The equity markets' fall from all-time highs was a deep cut spread across categories. The broad-based selling on Monday saw the benchmark Nifty 50 lose 2.7% and the broader market gauges—the NSE Midcap 150 and the Small Cap 250—lose 3.5% and 4.2%, respectively, with most listed stocks losing ground.
This sharp fall in the broader markets brings into focus the need for downside protection. Actively managed funds need to both be able to beat the benchmarks during bull runs and also be able to hedge against drastic losses when the broader markets are choppy.
Small-Cap Fund Performance
The small-cap funds had logged inflows of Rs 2,263.5 crore in June, according to AMFI. In this category, the funds with the best downside protection saw a 3.3–4.7% fall in their net asset value against July 31 on Monday.
The Bandhan Small Cap Fund, which had the least fall in NAV in the category, also managed to bring nearly 40% annualised returns in 2024. The fund's major holdings are in financials and consumption, which was launched in 2020. This scheme has provided the most downside protection, losing less than 4% on Monday.
The DSP Small Cap Fund also fell by nearly 4%, which is relatively lower than other schemes in the category. The scheme has an annualised return of nearly 35% in 2024. The scheme, which was launched in 2007, has significant holdings in consumer discretionary, materials, and industrials.
Other small cap schemes in the top 10 have fallen by nearly 5%, with schemes like Union Small Cap Fund and Bank of India Small Cap Fund losing 4.72% on Monday.
Mid-Cap Fund Performance
The mid-cap schemes attracted investments of Rs 2,527.84 crore in June, according to AMFI. The schemes with the best downside protection saw 3.7-4.6% fall in their net asset value on Monday.
The Motilal Oswal Midcap Fund, which fell by 3.7%, had returned about 60% in 2024. Launched in 2014, this scheme's major holdings are in technology, consumer discretionary, and industrials.
The scheme fell the least in the category, while other schemes fell as much as 4.6%. Schemes like Mirae Asset Midcap Fund and Quant Mid Cap Fund took a 4.5% fall. These funds returned nearly 40% and 55%, respectively, in 2024.
Downside Capture Ratio
The downside capture ratio measures a strategy’s tolerance for down markets relative to the index. A value of less than 100 indicates that an investment has lost less than its benchmark when the returns are negative for the benchmark.
The ratio is a monthly calculation, explained Kaustubh Belapurkar, director-manager research at Morningstar. The downside capture ratio is calculated over a few years.
Here, the months where the benchmark returns were negative within the larger time frame are considered, said Belapurkar.
"Some schemes may not have 100% upside capture, but they may have decent downside protection," he said. Downside protection depends on the performance of the schemes and the objective of the fund manager.
