Individual investors continue to invest in equity-oriented mutual funds for the fourth consecutive month. In June, the net inflow in these funds was around Rs 6,000 crore, though lower than Rs 10,082 crore the previous month as many investors booked profits as the markets witnessed a sharp rally. Prior to March this year, the segment had witnessed net outflows for eight consecutive months.
New investors are investing in mutual funds through the systematic investment plan (SIP) route as the total number of SIP accounts touched the 4-crore mark. The SIP contribution in June was Rs 9,155 crore, with SIP assets under management (AUM) accounting for almost 15% of total industry AUM.
Barring equity-linked savings schemes and value/contra funds, all the equity-oriented categories witnessed net inflows in June indicating the trend is in favour of Indian equities by domestic investors. Himanshu Srivastava, associate director, Manager Research, Morningstar India says good quarterly results and positive earnings growth outlook over the long-term has alleviated concerns of any severe impact of the second wave of the pandemic on the economy. “Additionally, a surge in markets despite challenges also boosted investor sentiment. These factors have prompted them to again allocate assets towards equities,” he says.
Mid-cap funds gain
The mid-cap fund category and sector/thematic funds are attracting significant investments with Rs 1,729 crore and Rs 1,207 crore, respectively in June. Even Flexi-cap funds that invest across market segments received net inflow of Rs 1,087 crore in the month. While the small-cap fund category reported net inflow of Rs 705 crore, large-cap fund category saw net inflow of Rs 547 crore in June.
Mid-cap funds invest in shares of companies ranked between 101 and 250 according to the market capitalisation. While mid-cap funds offer better returns than large-cap funds, they are very volatile and risky than large-cap funds. Ideally, individuals with high risk appetite can invest in mid-cap funds after finding good investment opportunities. Experts suggest low to moderate risk-takers to stick to large-cap funds. Investors must select a mid-cap or a small-cap fund in mutual funds after researching the track record of the fund house, stock selection and the conviction of the fund manager and the performance of the fund in various cycles.
Dynamic asset allocation funds
In the hybrid category, retail investors pumped in Rs 2,057 crore in dynamic asset allocation funds in June as investors took a balanced approach to equity and debt investment and preferred investments which are well-diversified, especially in an uncertain market. Moreover, arbitrage funds continued to remain investors’ favourite with net inflow of Rs 9,059 crore in the month as returns from liquid funds are falling because of very low yields.
In dynamic asset allocation funds, the market regulator does not specify any minimum or maximum limit either for debt or equity investment. The fund manager increases the exposure to equities when the investment metrics become favourable and brings it down when the metrics become unfavourable.
Akhil Chaturvedi, associate director, head of sales & distribution, Motilal Oswal Asset Management Company, says the prime objective of the funds in this category is to use valuation models and then dynamically rebalance portfolio between equities and fixed income ensuring better risk-adjusted returns for investors. “In the current environment, dynamic asset allocations funds are certainly a good option for investors,” he says.