Jimmy Patel, MD & CEO, Quantum Mutual Fund says, equity-oriented balanced funds are not risk averse in the true sense
Last year was good for the industry and for Quantum, too. The industry's AUM in the last one year grew by 32 per cent, mostly driven by inflows in equity and balanced funds. Almost 26 per cent of the folios are SIPs and every month Rs 5,200 crore is coming in through SIPs. Most importantly, it is good to see that investors have started participating in equity markets through mutual funds. One thing to be noted is that the share of balanced fund in the total AUM is increasing.
Managing return expectations
With equity, we are bullish on the India growth story. But equity valuations at the moment look expensive. We make a point to convey the same to our investors.
When it comes to bonds, however, we believe that the best of the bond market is potentially behind us. Since the start of the year, we have been advising investors to lower their return expectations from bond funds.
The only risk control we follow is to ensure that we stick to our tried and tested investment strategy. Our strategy is to buy good companies at comfortable valuations and wait patiently for value to emerge. We sell when the stock becomes expensive and hits our sell limit.
Rising industry assets
While rising assets for mutual funds is a positive, we need to be well prepared to combat its consequences. With a jump in investor count every fund house needs to ensure that servicing standards are maintained and do not take a nose dive.
Growth in assets also throws up challenges so far as the availability of good investment opportunities go.
Growing clout of domestic funds vis-a-vis FIIs
Yes, mutual funds seem to have outshone FIIs in net investments in Indian stocks after the latest bout of selling by the latter in 2017. It has also been seen that balanced funds are the flavour of the season. Investors' prefer balanced funds to mitigate the risk factor involved in a pure equity fund. However these are 'equity-oriented' balanced funds Therefore, their portfolios are not risk averse in the true sense. These investors are at a risk of higher dip in portfolio valuations in case of a correction. In the long term, this could affect the investor sentiment towards mutual funds.
Outlook for equity and debt
We remain positive on Indian equities over the long term. But we are cautious in the near term. Inflation is showing signs of firming up from here on. We expect the RBI to remain on a prolonged pause, which in turn indicates limited potential for bond yields to go down.