The Underperformers: Equity Mutual Funds That Struggled in Down Markets

Recent data from ACE MF highlights six equity mutual fund schemes that significantly underperformed their benchmarks over the past five years. These funds are notable for their high down capture ratios, a measure that indicates how much a fund has lost relative to its benchmark during market declines. Specifically, these funds have down capture ratios exceeding 150, signaling that they experienced greater losses than their benchmarks when the market was in a downturn.

Understanding Down Capture Ratio

Before diving into the specifics of these funds, it’s crucial to understand what the down capture ratio signifies. This ratio is a performance metric used to assess how well a fund performs during periods when the market is falling. It measures the extent to which a fund’s returns decline relative to its benchmark in down markets. A down capture ratio of less than 100 indicates that a fund has outperformed its benchmark during negative market conditions, meaning it lost less than the benchmark. Conversely, a ratio above 100 indicates underperformance, as the fund has lost more than its benchmark during market declines.

Funds with High Down Capture Ratios

Here are the six equity mutual fund schemes that have recorded the highest down capture ratios over the past five years:

Quant Large Cap Fund
- Down Capture Ratio: 207.49
- Category: Large Cap
- Performance Analysis: The Quant Large Cap Fund has a down capture ratio of 207.49, suggesting it has experienced losses that are more than double those of its benchmark during market declines. This substantial ratio indicates significant underperformance in adverse market conditions.
Invesco India Focused Fund
- Down Capture Ratio: 178.76
- Category: Focused Fund
- Performance Analysis: With a down capture ratio of 178.76, the Invesco India Focused Fund has faced considerable losses relative to its benchmark during downturns. This high ratio highlights the fund’s vulnerability to market declines, reflecting its greater relative losses compared to the benchmark.
WOC Mid Cap Fund
- Down Capture Ratio: 175.37
- Category: Mid Cap
- Performance Analysis: The WOC Mid Cap Fund’s down capture ratio of 175.37 indicates that it has underperformed its benchmark by a significant margin when the market was down. This fund has experienced greater declines than its benchmark during negative market periods.
Bank of India Bluechip Fund
- Down Capture Ratio: 165.33
- Category: Large Cap
- Performance Analysis: The Bank of India Bluechip Fund, with a down capture ratio of 165.33, has also shown a tendency to lose more than its benchmark in down markets. This fund’s performance during market downturns has been notably worse compared to its benchmark.
Samco Flexi Cap Fund
- Down Capture Ratio: 161.45
- Category: Flexi Cap
- Performance Analysis: The Samco Flexi Cap Fund has a down capture ratio of 161.45. This figure indicates that it has underperformed its benchmark in terms of losses during market declines, experiencing more significant losses when the market was in a downtrend.
ITI Mid Cap Fund
- Down Capture Ratio: 152.90
- Category: Mid Cap
- Performance Analysis: The ITI Mid Cap Fund has a down capture ratio of 152.90, which highlights its tendency to lose more than its benchmark in falling markets. This fund’s performance during market downturns has been poorer compared to the benchmark.

Categories Affected

These funds come from various categories, including large cap, mid cap, flexi cap, and focused funds. Each category’s performance can be influenced by different factors, including market conditions, sector allocation, and fund management strategies. In general, large cap funds are expected to offer more stability, while mid cap and focused funds may exhibit higher volatility. However, the high down capture ratios of these funds suggest that even those categorized as large cap, typically seen as more stable, have faced substantial losses relative to their benchmarks during market declines.

Conclusion

The high down capture ratios of these six equity mutual fund schemes reflect their significant underperformance during market downturns. Investors should be aware of these ratios when evaluating the resilience of their mutual fund investments in adverse market conditions. While a high down capture ratio does not necessarily predict future performance, it highlights past difficulties in managing risk during market declines. Investors might consider this information when assessing the potential risks and rewards of their mutual fund investments.