Indian investors have persisted with equity funds though global markets turned volatile due to issues such as Evergrande’s debt problems in China and the energy crisis in developed markets. As per data released by the Association of Mutual Funds in India (AMFI), equity funds saw net inflows (investments exceed redemptions) of Rs 8,677 crore last month. Total assets under management of the mutual fund industry rose to Rs 36.73 trillion in September 2021 compared to Rs 36.59 trillion in the previous month. In these euphoric times, what should investors do?
SIPs at record highs
The systematic investment plan (SIP) book of the mutual fund industry crossed the Rs 10,000 crore mark. In September 2021, SIP investments brought in Rs 10,351 crore compared to Rs 9,923 crore in August 2021. The number of SIP accounts stood at 4.48 crore, a rise of 16 lakh over the previous month.
“Retail Investors are preferring Mutual Funds over low-yielding traditional avenues such as bank fixed deposits, gold and real estate. On the back of a rapidly improving economic scenario, aided by a conducive Reserve Bank of India policy and easing of COVID-related restrictions, equities as an asset class would continue to deliver superior risk adjusted returns,” says N. S. Venkatesh, Chief Executive, AMFI.
Equity funds saw net inflows of Rs 8,677 crore in September compared to Rs 8,666 crore in August 2021. Four new fund offers of equity funds put together brought in Rs 6,579 crore.
Sustained inflows in equity funds, rising markets and SIP book at all-time highs may make a few investors suffer from FOMO – fear of missing out. Such a situation is seen many times in the capital markets when the markets are doing well. However, investors must avoid knee-jerk reactions.
Though it may sound too boring, experts say that sticking to asset allocation is the way out for most investors at this juncture. Akshat Garg, Manager- Research, Investica, says that this is a good time to rebalance your asset allocation. If you are an investor in mutual funds, you needn’t load up more of equities just because the markets are rising. “Carrying on the SIP is the best investment decision an investor can make in these unprecedented times, as a correction would benefit the investors via rupee cost averaging,” Garg adds.
Rupesh Bhansali, Head- Mutual Funds, GEPL Capital says, “If you are investing in equity funds through SIPs, you are not missing out on the action in the stock market. Avoid investing all your money in equity funds in one go.” He advises investors to continue with their SIP and add more on dips if the market corrects.
Staggered investing in equities
If you want to start investing in mutual funds, then you should ideally stagger your investments using an SIP. Nirav Karkera, Head-Research, Fisdom says, “Focus on investing in the high-quality segment of the equity market through large-cap funds. Ideally, do not start with mid and small-cap funds.”
Small cap funds have seen net outflows of Rs 248 crore. The outflows can be attributed to smart money moving out of these schemes after making handsome returns in the bull market. Small cap funds as a category have given 90.35 percent returns over last one year as per Value Research.
Flexi-cap and Multi-cap funds also work for investors keen on investing for the long term through SIPs. These two categories also saw inflows of Rs 2,008 crore and Rs 3,569 crore in September 2021.
Start with investments in dynamic asset allocation funds if you can’t decide for yourself. These schemes allocate money to bonds and stocks using a rule-based framework. Among the hybrid funds, these schemes have got the highest net inflows of Rs 5,233 crore.
Though equity markets are doing well, do not dump other asset classes. Though investments in gold have not rewarded investors, they are crucial asset in your financial plan. “Allocation to gold is a must at all times. It acts as an insurance for your portfolio when the markets turn extremely volatile,” says Karkera. You may allocate 5-10 percent of your money to gold.
Bond funds saw net outflows of Rs 63,910 crore in September 2021. Liquid funds, ultra short duration funds and low duration funds saw net outflows of Rs 48,379 crore, Rs 40,908 crore and 16,609 crore respectively. Towards the end of each quarter, many firms and small businesses use their investments in such schemes to make payments to vendors and to pay their advance tax.
Investors are shying away from long duration schemes on the expectation of a rise in interest rates. In such a situation, it makes sense to invest in short duration debt schemes or floater funds.