Investor interest in mutual funds has waned since the Sensex’s peak of about 28,300 points in early August 2015. From over Rs 9,000 crore as at the end of August last year, net inflows into equity funds have steadily dwindled to just around Rs 2,500 crore by end February 2016 ( latest available data).
But if one looks at the glass as half full, the good news is that investors have kept faith in equity mutual funds during these tough times. 38 out of the 172 diversified equity funds, or roughly one-fifth of them have managed to increase their asset sizes in the August 2015-February 2016 period, despite erosion in their NAVs ( Net Asset Value). NAV can decline due to the market fall and in many cases, dividend declarations as well. What’s more, the choice of funds is appreciable too, with investors putting their money predominantly into funds which are among the best in class and which have a reliable track record.
Says Taher Badshah, Fund Manager and Head –Equity MFs at Motilal Oswal Asset Management, “Even amidst the volatility and uncertainty, it is notable that we are not seeing net outflows from equity funds. The approach of domestic investors to mutual funds has been far more rational and mature this time around. People have been accepting of the India growth story given the reforms that are happening and have also reposed faith in the political dispensation. Therefore investors are willing to ride out the volatility and SIP investments are continuing to be active now.”
Even as large-cap stocks took a bigger knock in the recent past compared to their counterparts, investors have reiterated their faith in large-cap oriented funds as a safe bet in falling and volatile markets. 18 out of the 72 large-cap oriented funds available currently have seen their asset sizes increase since August 2015. Notable among such funds are BNP Paribas Equity, DSPBR Focus 25, Franklin Prima Plus, Kotak 50, Kotak Select Focus, Reliance Top 200, SBI Bluechip and SBI Magnum Equity. These are among the funds that have been able to contain losses much better than the benchmark in the last one year. Besides, they have been out-performers in earlier rallies and falls too, with timely sector and stock calls.
This apart, Mirae Asset India Opportunities, a dependable multi-cap fund, has also seen investor interest. The asset size of Franklin India High Growth Companies, a topper across market cycles in the multi-cap category grew by 8 per cent to Rs 3,614 crore as on end February 2016 , over end August 2015. This is despite the 15.5 per cent fall in its NAV in this period. Similarly, investors with a higher risk appetite have preferred dependable midcap funds such as BNP Paribas Midcap, Canara Robeco Emerging Equities, Mirae Asset Emerging Opportunities and SBI Magnum Midcap.
Defensives and new funds score
The iffy markets have also seen assets of thematic funds from traditionally defensive sectors such as Pharma and MNC soar. Conservative investors have lapped up dividend yield funds such as the one from BNP Paribas. Amidst the mayhem in banking stocks, Tata Ethical, which stays away from the banking and financial space has found favour with low-risk investors too.
Investors have also not gone without noticing the men among the boys, when it comes to new funds. Good performers among the recently launched funds (those with less than five years into its existence) such as IDBI Top 100, Motilal Oswal Focused Multicap 35 /Midcap 30 and Axis Focused 25 have seen healthy asset growth too.
But investors must tread with as bit of care on these funds. Though the newbies may do well now, their performance needs to be watched closely over different phases of the market to ensure the fund manager’s ability to dynamically respond to various market situations. Also, with Pharma stocks continuing to do well for many years now and valuations inching up for MNC stocks, investors in these funds must remember that the high returns of the past may not be replicated as valuations inch up in the space. Birla Sun Life MNC fund, for example, now sports a portfolio PE of a steep 43 times.