In August 2022, the Nifty surged by 3.50%. This may look paltry after the 8.73% Nifty returns in July, but this is on a higher base. The mid cap indices did much better than the Nifty in the month of August 2022. For instance, August saw mid-cap index rallying by 6.23% while the small cap index also surged by 4.91%. The big story of the month was the strength shown by the markets as any intermittent correction was offset by aggressive buying. There were several factors that led to the smart rally in the markets in August 2022.
The primary driving factor for the rally was the turnaround in FPI sentiments. The turnaround had started in July but it was in August that the FPI flows gathered momentum. It may be recollected that FPIs had turned net buyers in equities to the tune of $618 million in July after 9 months of selling equities worth $33 billion between October 2021 and June 2022. August saw a ten-fold jump in FPI net inflows at $6.44 billion. What triggered FPI flows of this order? Firstly, there was clarity on the extent of hawkishness by the Fed and with the RBI also following suit, there is not much of arbitrage. Also, the rupee has stabilized around Rs80/$ and that has provided a currency edge to FPI buying.
During August 2022, the 10 year bond yields trended lower and stayed in the range between 7.157% and 7.292%. The clarity on the rate cycle and the tapering of inflation across the world has reduced the volatility and tumult in the bond markets. Despite the RBI hiking rates by another 50 bps in the August 2022 MPC meeting, the yields did not show much of an impact as inflation tapered. Here is the mutual fund performance story of August 2022.
1. Equity Large-Cap Funds
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Canara Robeco Blue-Chip (G) | 1.739% | 19.757% | 13.926% |
| Axis Blue-Chip Fund (G) | -2.043% | 15.309% | 13.508% |
| UTI Mastershare Unit (G) | 3.426% | 18.352% | 12.630% |
| Data Source: Morningstar |
2. Equity Multi-Cap Funds
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Active Fund (G) | 12.387% | 36.397% | 21.877% |
| Mahindra Manulife Multi (G) | 7.063% | 25.851% | 14.724% |
| Nippon India Multi Cap (G) | 17.516% | 22.296% | 13.549% |
| Data Source: Morningstar |
3. Equity Mid-Cap Funds
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Mid-Cap Fund (G) | 19.568% | 36.863% | 20.450% |
| PGIM India Mid-Cap Fund (G) | 11.734% | 41.050% | 19.413% |
| Axis Mid-Cap Fund (G) | 3.755% | 24.788% | 17.740% |
| Data Source: Morningstar |
4. Equity Small-Cap Funds
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Small Cap Fund (G) | 9.020% | 51.650% | 21.111% |
| Axis Small Cap Fund (G) | 12.024% | 29.305% | 19.812% |
| SBI Small Cap Fund (G) | 17.959% | 32.061% | 19.436% |
| Data Source: Morningstar |
5. Equity Linked Savings Schemes (Tax Saving)
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Tax Plan (G) | 17.199% | 39.965% | 21.863% |
| Canara Robeco Tax Saver (G) | 4.522% | 23.794% | 16.149% |
| Mirae Asset Tax Saver (G) | 3.437% | 21.980% | 15.429% |
| Data Source: Morningstar |
6. Balanced Funds (Aggressive Allocation)
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Absolute Fund (G) | 15.520% | 31.252% | 18.945% |
| ICICI Pru Equity & Debt (G) | 16.877% | 22.270% | 14.128% |
| BOI AXA Mid and Small (G) | 1.633% | 26.407% | 12.303% |
| Data Source: Morningstar |
7. Balanced Funds (Conservative Allocation)
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Kotak Debt Hybrid (G) | 5.990% | 11.667% | 8.500% |
| ICICI Pru Regular Savings (G) | 6.493% | 9.844% | 8.220% |
| Canara Robeco Hybrid (G) | 2.936% | 9.846% | 7.815% |
| Data Source: Morningstar |
8. Arbitrage Funds (Cash-Futures)
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Kotak Equity Arbitrage (G) | 3.694% | 4.162% | 5.044% |
| Nippon India Arbitrage (G) | 3.437% | 4.029% | 5.038% |
| Edelweiss Arbitrage Fund (G) | 3.589% | 4.150% | 5.008% |
| Data Source: Morningstar |
9. Government Securities Funds (Gilt Funds)
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Edelweiss G-Sec Fund (G) | 2.702% | 6.330% | 7.440% |
| DSP G-Sec Fund (G) | 2.286% | 6.287% | 6.830% |
| IDFC G-Sec Fund (G) | 1.182% | 5.876% | 6.722% |
| Data Source: Morningstar |
10. Corporate Bond Funds
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| ABSL Corporate Bond (G) | 3.249% | 6.817% | 7.149% |
| L&T Triple Ace Bond (G) | 2.632% | 6.381% | 7.046% |
| HDFC Corporate Bond (G) | 2.794% | 6.458% | 6.953% |
| Data Source: Morningstar |
11. Credit Risk Funds
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| ICICI Pru Credit Risk Fund (G) | 4.862% | 7.623% | 7.305% |
| HDFC Credit Risk Fund (G) | 3.653% | 7.603% | 6.942% |
| Baroda Credit Risk Fund (G) | 11.828% | 8.134% | 6.589% |
| Data Source: Morningstar |
12. Liquid Funds
Top performing Regular Plans (Growth Option) on 5-year returns (as on 31st Aug-22):
| Name of Fund | 1-Year Return | 3-Year Return | 5-Year Return |
| Quant Liquid Plan (G) | 4.073% | 4.601% | 5.610% |
| IDBI Liquid Fund (G) | 3.942% | 4.204% | 5.385% |
| Mahindra Manulife Liquid (G) | 3.896% | 4.092% | 5.321% |
| Data Source: Morningstar |
The equity returns across large caps, mid-caps and small caps were positive in August 2022, but not as impressive as July. That was reflected in the rankings. Most leaders gave lower 1-year returns compared to July but the 3-year returns and 5-year returns improved over July 2022. If July was the month of cautious recovery, August 2022 saw a lot more confidence in markets in terms of FPI flows, policy clarity and macro numbers. Central banks have spelt out the outer limits of policy rates and inflation is tapering across the board. Technically it looks like a matter of time before inflation and real GDP growth rates also normalize. That should be value accretive for equity fund performance in the months ahead.
Despite the uncertainty over inflation and rates, debt fund returns were stable in August 2022 due to bond yields being in a narrow range. The good news is that the equity and debt fund return leaders have continued to maintain consistency in performance across categories. This makes these rankings a reliable barometer and decision point for investors. August 2022 marks the second month after July 2022 when equity and debt funds have performed well overall. From a fund selection perspective, the consistency is the big takeaway.
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