Key Reasons Why Mutual Funds Turned Net Buyers in March 2021 - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Key Reasons Why Mutual Funds Turned Net Buyers in March 2021
Apr 8, 2021

A strong second wave of COVID-19 has increased the volatility in the Indian equity markets. Foreign Portfolio Investors (FPIs), who net purchased Rs 2,74,502 crore worth of Indian equities since April last year, have now turned cautious; they tapered their investments in March 2021.

On the other hand, domestic mutual funds have turned net buyers to the tune of Rs 2,476 crore in the Indian equity markets in March 2021 for the first time in the last 10 months, perhaps seeing some value buying opportunity (and gauging the margin of safety) after witnessing a correction since the peak of 52,516.76 points (made on February 16, 2021) on the S&P BSE Sensex. That said, in FY21 domestic mutual funds were net sellers to the tune of Rs 1,23,826 crore in Indian equities.

Graph 1: FPI vs. MF activity in the secondary markets

The other prominent reasons for domestic mutual fund turning net buyers in March 2021 could be...

Redemption pressure on equity mutual funds might have eased

While the data on the subscription and redemption is awaited -- and I will observe it minutely once it is released -- it appears that redemption pressure has eased for fund managers, and in certain sub-categories of equity mutual funds, investors have deployed their hard-earned money in the pursuit of wealth creation and to accomplish financial goals. Investors now are recognising that the returns on some traditional investment avenues are not very respectable once adjusted for inflation.

--- Advertisement ---
FREE Event on Equitymaster's New Project

On May 17, we are holding a FREE event to reveal Equitymaster's Great Indian Wealth Project.

At this event, we'll reveal the details of your first stock for a potential Rs 7 crore in long-term wealth.

Seats for this event are filling up fast.

Since there are limited seats, we urge you to register at the earliest.

Click here for free sign-up
------------------------------

End of the season inflows in Equity Linked Savings Schemes (ELSS)

March is a busy month for tax planning, as most people keep investments in tax-saving investment avenues for the last minute. The Equity Linked Saving Schemes (ELSS), also known as tax-saving mutual funds, may have reported inflows given their ability to clock better returns over the three-year lock-in period or more when selected prudently. Plus, the fact that the lock-in period in the case of ELSS is the least compared to other tax-saving investment instruments.

A slew of New Fund offers

Quite a few fund houses such as Axis Mutual Fund, Aditya Birla Mutual Fund, and Nippon India Mutual Fund amongst others launched Index Funds in March 2021. This in turn could have also accelerated the net investments of mutual funds in the Indian equity markets.

Participation by mutual funds in IPOs

Indian companies raised over Rs 31,000 crore from the primary markets in FY21. Some companies that floated IPOs at attractive valuations and with robust underlying fundamentals perhaps encouraged domestic mutual funds to participate in the IPO rush, like many other participants. But it is also noteworthy that some IPOs despite high participation, did not list at a premium and the ones who did; could not continue to command the premium in the ensuing trading sessions post-listing.

Are Robinhood investors finally coming to terms with market realities?

Seeing the meteoric rise of the Indian equity market since its March 2020 lows, many Robinhood investors are entering the markets even at the market high. The total demat accounts in the country have touched a record high of over 5 crore in FY21, and more than a crore of these are newly opened during FY21.

However, the big concern is that many of these newbies who have embarked on a rollercoaster for an enthralling experience, to make fast profits; may not necessarily have the stomach for high risk and haven't experienced the discomfort of deeper corrections so far.

Learn: How to Potentially Accumulate Rs 7 Crore in Wealth Over the Long-term

In my view, if you wish to ride the volatility maturely, the Systematic Investment Plan (SIP) route offered by mutual funds is worthwhile (if the schemes are suitably selected and among the best performing ones) rather than timing the market -- which could prove hazardous for wealth and health. What is important is the 'time in the market'.

If you are SIP-ping into worthy mutual fund schemes, do not commit the mistake of discontinuing or stopping your SIPs. It could put brakes on the compounding process. Going forward, even if the market corrects or hits turbulence and volatility increases, the inherent rupee-cost averaging feature would help mitigate the risk involved while you endeavour to compound your hard-earned money. More units would be allotted against your SIP instalment when the market falls, and when the market begins to ascend again, it would compound your wealth. Keep in mind, by devising a sensible investment strategy you can be a successful investor.

With the S&P BSE Sensex around 50,000 levels and a strong second wave of COVID-19, I suggest following the 'Core & Satellite' approach. It is a strategy pursued by some of the most successful equity investors to build wealth.

The term 'Core' applies to more stable, long-term holdings of the portfolio; while the 'Satellite' applies to the strategic portion that would help push up the overall returns of the portfolio in good market conditions.

As per this strategy, your 'Core holdings' should constitute 65%-70% of your entire equity mutual portfolio and include a Large-cap Fund, Multicap/Flexicap Fund, and a Value Style Fund. The 'Satellite' holdings may account for 30%-35% of your portfolio and comprise of a Mid-cap Fund, a Large-cap & Mid-cap Fund, and an Aggressive Hybrid Fund.

Note that this allocation to the satellite portfolio should change based on the market outlook. If the outlook is extremely gloomy, you may avoid mid-caps altogether and add more exposure to aggressive hybrid funds to add stability.

By wisely reviewing the Core and Satellite portions and the holdings therein, you would be able to add stability to the portfolio and at the same time strategically boost your portfolio returns.

--- Advertisement ---
How to Earn a Fortune in Gold, the Smart Way

Gold is on 'the verge of a decadal run' says Vijay Bhambwani, India's #1 Trader and Editor of Fast Profits Daily at Equitymaster.

He says gold has the potential to generate staggering gains in the coming years...And those who are betting on gold right now will hit the jackpot.

But wait.

While gold is an attractive investment destination, there's a very specific way to play this opportunity...

A way that ensures you rake in maximum profit and perhaps hit the jackpot...while minimizing potential pitfalls. Thankfully, Vijay - India's #1 Trader - can guide you step-by-step in the upcoming gold rush and help hit the jackpot just at the right time.

Sure, you don't want to be an average trader. That's not how you make a fortune.

Here's how you can get Vijay's guidance...
------------------------------

A sensibly built "Core and Satellite" portfolio of equity mutual funds brings with it six key benefits:

  1. Facilitates optimal diversification
  2. Reduces the need to frequently churn the portfolio
  3. Reduces the risk profile to your portfolio
  4. Enables you to enjoy the benefits of a variety of investment strategies
  5. Creates wealth cushioning the downside
  6. Potentially outperforms the market

Note, the Core & Satellite investment strategy may work for you in 2021 and beyond; it is an evergreen approach that brings along immense benefits. With a strategic portfolio of diversified equity funds, you can plan for your envisioned financial goals better.

If you wish to invest in a readymade portfolio of top recommended equity mutual funds based on the 'Core & Satellite' approach to investing, I suggest subscribing to PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025 (2021 Edition)".

At PersonalFN, we follow a comprehensive S.M.A.R.T Score Matrix to select the best mutual funds. We evaluate...

  • S - Systems and Processes
  • M - Market Cycle Performance
  • A - Asset Management Style
  • R - Risk-Reward Ratios
  • T - Performance Track Record

This has helped our valued mutual fund research subscribers to own some of the best equity mutual fund schemes in the investment portfolio with a commendable long-term performance track record.

Subscribing to PersonalFN's Premium Report, "The Strategic Funds Portfolio For 2025 (2021 Edition) would help you build your optimum strategic mutual funds portfolio for 2025 with no effort on your part. If you haven't subscribed yet, do it now!

Happy Investing!

Author: Rounaq Neroy

This article first appeared on PersonalFN here.

Join Now: PersonalFN is now on Telegram. Join FREE Today to get 'Daily Wealth Letter' and Exclusive Updates on Mutual Funds

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Key Reasons Why Mutual Funds Turned Net Buyers in March 2021". Click here!

  

More Views on News

Top 5 Recent IPO Developments You Should Know (Views On News)

May 12, 2021

So far in 2021, IPOs in India have raised nearly US$ 3 bn, the best start to the year since 2018.

How Did Mindtree Perform in Q4FY21? (Company Info)

Apr 20, 2021

Here's the rundown on the company's latest quarterly results.

Top Pick for Next Decade podcast (Views On News)

May 13, 2021

Rahul Shah on his favoured pick for the next decade.

Is Intraday Trading For You? (Fast Profits Daily)

May 13, 2021

Do you think you have what it takes to be an intraday trader? Find out in this video.

Beware! Not Every EV Stock Will Be a Tesla (Profit Hunter)

May 13, 2021

Analyse the business models of EV stocks before investing in them.

More Views on News

Most Popular

The Next Smallcap Winners (Profit Hunter)

Apr 30, 2021

Price is the only due diligence one might require to buy this business.

Time to Buy Smallcaps? (Fast Profits Daily)

Apr 30, 2021

In this video, I'll show you why I favour smallcaps over the Nifty.

Are the Stock Markets Deaf to Covid Agony? (Profit Hunter)

May 6, 2021

Why are markets discounting the economic impact of Covid?

My Secret to Find Breakthrough Stocks (Fast Profits Daily)

May 7, 2021

I've used this trading technique for many years with great success. I'm sharing it with you today.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


May 12, 2021 (Close)

MARKET STATS