Mutual Fund Asset Allocation during COVID-19

44 Pages Posted: 11 Oct 2020 Last revised: 1 Mar 2021

See all articles by Joshy Jacob

Joshy Jacob

Indian Institute of Management (IIM), Ahmedabad

Nilesh Gupta

Indian Institute of Management Nagpur

Balagopal Gopalakrishnan

Indian Institute of Management Kozhikode

Date Written: October 5, 2020

Abstract

The paper examines the investment decisions of equity mutual funds during various stages of the COVID-19 pandemic with monthly portfolio holdings. We find that funds have favored firms with lower risk, higher financial flexibility, and larger asset size during the early months of the pandemic. This preference for relatively less risky firms, which later reverses, suggests a reallocation towards safer assets given the higher uncertainty at the beginning of the crisis. We also find that funds preferred growth firms over value firms as value firms with greater invested capital are likely to be less resilient to the crisis-induced shock. Institutional investors have also favored group-affiliated firms throughout the crisis, reflective of their ability to negotiate through the protracted economic shock. Furthermore, our fund-level analysis reveals that the investment approach of funds strongly varied by the extent of the net fund flows. The paper brings out key firm- and fund-level characteristics that impact the asset allocation of institutional investors during extreme market uncertainty.

Keywords: COVID-19, fund flows, mutual funds, India, asset allocation, institutional investors

JEL Classification: G11, G14, G23

Suggested Citation

Jacob, Joshy and Gupta, Nilesh Kumar and Gopalakrishnan, Balagopal, Mutual Fund Asset Allocation during COVID-19 (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3705153 or http://dx.doi.org/10.2139/ssrn.3705153

Joshy Jacob (Contact Author)

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Nilesh Kumar Gupta

Indian Institute of Management Nagpur ( email )

VNIT Campus, South Ambazari Road
Nagpur, Maharashtra 440010
India

HOME PAGE: http://https://www.iimnagpur.ac.in/faculty/nilesh-gupta/

Balagopal Gopalakrishnan

Indian Institute of Management Kozhikode ( email )

Faculty Block 2/14
Kunnamangalam
Kozhikode
India

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