It has been a great year for the mutual fund industry so far. Equity funds have witnessed a surge in AUM in line with the rally in the stock markets. In 2017, equity mutual fund assets crossed Rs 7.94 trillion for the first time in India. This phenomena is an outcome of a sharp rise in demand from retail investors, especially those from small towns. Our schemes in both equity and debt segments have performed well and as a result we have seen reasonable growth in our assets.
Managing return expectations
Although near term valuations are on the higher side, fundamentals of the economy induce us have a positive outlook for the next few years. However, in the short term, we are operating with defensive portfolios till the earnings catch up. Equity investors need to adopt a long term horizon and must dismiss the mentality of timing the market. Experienced investors know that the markets can be volatile and they need to deal with it in a structured manner. For a new investor, it is always prudent to invest through the SIP route.
On the debt side, system liquidity has increased significantly in recent years, which has come into mutual funds, as deposit rates offered by the banks are relatively low. The mutual fund industry's AUM across debt products has grown by almost 24 per cent in the last one year. We have adopted a mix of accrual and duration strategies, which have worked well with falling interest rates.
Rising industry assets
Global stock markets are peaking due to strong GDP growth and easy financial conditions. Managers the world over are pouring more cash into risky assets and one of the ways to deal with the situation is to stick to defensive portfolios for the time being till the fundamentals catch up.
Growing clout of domestic funds vis-a-vis FIIs
Mutual fund net investments in equity markets have turned positive over the last few years, and this year (calendar year 2017) so far it is almost double of the last year's number. The net inflows into stock markets by mutual funds is almost Rs 2 trillion for the last three fiscal years and are currently more than 5 per cent of the of the outstanding shares. It is evident that mutual funds are emerging as a popular investing vehicle for investors and are making the markets much more resilient to pull-outs by FIIs.
Outlook for equity and debt
Several path-breaking reforms have been undertaken in the last three years. We expect the benefits of these reforms to start percolating to corporate earnings and the economy in general over the next 8 to 12 months. This, along with increased preference for financial savings, not only provides more depth but also structurally changes the shape of the equity markets over the medium term. There is a tremendous opportunity to create wealth over the medium to long term.
We believe that the slowdown in growth (after effects of demonetisation and GST implementation), along with expectation of soft inflation, could probably keep rates lower in the near future, which would go well for fixed-income funds.
This article was originally published on December 13, 2017.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
