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Coronavirus pandemic | Overnight funds save the day as equity funds fall by the wayside

Mutual fund experts said the rate of return on overnight securities may be lower, but overnight funds will provide better capital protection

March 20, 2020 / 03:49 PM IST

The coronavirus pandemic has dented investor confidence worldwide and our domestic bourses are also reeling under the impact of the deadly outbreak.

All equity scheme categories have delivered negative returns in the last one week ended March 19, 2020 (March 12-19, 2020) when market gave up almost 5,000 points.

The benchmark Sensex dropped over 12 percent in the past one week, dropping from 33,000 levels to nearly 28,000, reacting to the coronavirus outbreak.

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According to Value Research, the worst-hit category was the small cap funds that delivered negative average returns of 15.50 percent in the last one week. In comparison S&P BSE Small Cap Index fell 14.78 percent.

Not too far away, the second badly hit category was banking and financial services dedicated funds that gave 15.40 percent negative average returns.

However, the category outperformed the bechmark S&P BSE Bankex Index that fell 18.45 percent during the review period.

Other equity funds categories also gave negative returns in the range of 9-14 percent in the one week period that ended March 19.

Fund managers feel, it is a good time to accumulate in the market as the effect of pandemics in the past have not lasted for long on the market.

“At the current levels, market valuations are very attractive and there is some sense of panic in the market due to the very rapid fall we have experienced in the indices in very short period of time," said George Heber Joseph, CEO & CIO, ITI MF.

He also said that in the past instances of virus epidemics, the impact on  markets has been short-lived.


Overnight funds was the only category to deliver positive average returns across all mutual fund categories. This category gave 0.09 percent in the past one week.

Overnight funds invest in CBLO (collateralised borrowing and lending obligations) and repo/reverse repo instruments that mature in one day.

Mutual fund experts said the rate of return on overnight securities may be lower, but overnight funds will provide better capital protection.

 Investors have become extra cautious after IL&FS default surfaced in September 2018. The presence of IL&FS and its subsidiaries in the portfolios of liquid funds led to a sharp fall in their NAVs, prompting investors to turn to overnight funds.

Back then, the firm and some of its subsidiaries' credit ratings were downgraded. Debt funds that had invested in these scrips got impacted. Some fund houses that had invested in these scrips took a hit as they wrote down their investments resulting in a fall in net asset values.

Himadri Buch
first published: Mar 20, 2020 03:07 pm

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