Investments in mutual funds aim to keep the wealth of investors safe and also ensure steady growth. However, there was an extraordinary volatility in the small- and mid-cap indices in March, resulting in an unstable return trajectory for funds in the respective categories. Certain mutual funds did not just grapple with the stock market's erratic behavior but also underperformed against their benchmarks.
Last month was marked by events like the disclosure of stress test and liquidity analysis as mandated by the Securities and Exchange Board of India on the questions of frothy valuations in the broader markets, as well as notable corrections in the constituent stocks. The Quant Mid Cap Fund and Small Cap Fund fell the most out of their peers on March 14, outpacing the decline in Nifty Midcap 150 and Nifty SmallCap 250 respectively.
In order to evaluate mutual funds based on their resilience during such selloffs, the downside capture ratio serves as an essential tool. This metric effectively measures a fund's ability to mitigate losses in adverse market conditions, offering a clear lens through which the performance of funds can be assessed during turbulent times.
"A value of less than 100 indicates that an investment has lost less than its benchmark, during periods of negative returns for the benchmark," Kaustubh Belapurkar, director of fund research at Morningstar India, told NDTV Profit.
Among flexi-cap schemes, HDFC Flexi Cap Fund had the lowest downside capture ratio of 63.1, while for small-cap schemes, it was SBI Small Cap Fund with a ratio of 43.6.
Amid mid-cap schemes, Motilal Oswal's Midcap Fund had the lowest downside capture ratio of 47.6 based on its performance over three years, In large-cap schemes, ICICI Prudential Bluechip Fund had the lowest ratio at 80.4.
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