September 30, 2022

Certain factors such as positive sentiments and rally in the equity markets have attracted several investors towards equity mutual funds like a moth to a flame. However, the quantum of cash flows into the equity markets dipped from Rs 36,656 crores in September 2021 to Rs 28,671 crores in October 2021. This could be because several investors ended up booking profits as the markets started to trade at all-time highs. What’s more, several investors chose to stay in the sidelines as the stock markets were overvalued.

 

However, the good news is that the pickup in the vaccination drive across the country and resumption of business activities have drastically improved the growth viewpoints. This has helped the markets in touching their all-time highs on the prospects of economic retrieval, which has helped sideline the possible financial risk of a probable third wave of the Covid-19 pandemic. The potential to earn significant returns and this secular bull run in the markets further motivated the investors to boost the cash inflows in the equity markets. Equity mutual funds were further popular due to the lower returns offered by traditional forms of investment options. This has resulted in a robust inflow of cash in the equity-oriented mutual funds since March 2021. The equity segments have received a massive net inflow of Rs 73,766 crores since March this year. Evidently the market trends have upturned. Except for ELSS tax-saving mutual funds or equity-linked savings scheme and dividend yield categories, all the other types of equities have witnessed net cash inflows in the market in October. NFO or new fund offer have been constant to gather strong interest among retail investors. Additionally, owing to the sharp rally in the prices of equity indices, several investors are fascinated by passively managed mutual fund schemes. During the same duration, 3 new ETFs (exchange-traded funds) and 4 index funds were launched that co-jointly collected a new inflow of Rs 1,119 crores in the month of October. Sequentially, other ETFs category and index mutual funds acknowledged a total cash inflow of Rs 5,427 crores and Rs 3,514 crores respectively.

 

In the other equity funds categories, thematic funds or sector funds continue to appeal retail investors with a majority of these investors exploiting the situation of recent market ally experienced all around. However, one must be careful of the fact that all investors should be careful while investing in equity mutual funds as sector funds and thematic funds belonging to the equities categories are believed to be cynical in nature. Additionally, these mutual fund schemes tend to carry a higher level of risk as compared to a diversified investment portfolio of regular equity mutual funds. This is why mutual fund experts and financial advisors often advise their investors to invest in these high risk-return investment options only if one has the essential resources and understanding of the equity markets or are endowed with the needed support and guidance to make informed investment decisions. Happy investing!

Steve Campbell

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