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Investors Are Undeterred To Market Volatility To Continue Investing In Equity Funds
Sep 13, 2019

September is here to remind us that we have completed 8-months of the calendar year 2019 and reflect to review the past performance. It's time to take a closer look at past month's AMFI data which was shared recently to understand the Mutual fund industry's progress so far.

As per the data released, there has been a rise in a number of folios. The number of open-ended equity folios have risen to 59.8 million (5.9 crores) in August 2019 from 59.4 million (5.8 crore) in April 2019, to push the overall count of a number of folios to 85.3 million (8.53 crore).

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Table 1: Monthly rise in No of folios

Month Apr-19 May-19 Jun-19 Jul-19 Aug-19
Total no of folios 8.27 8.32 8.37 8.48 8.53
no of debt folios 52 52 53 54 52
no of equity folios 580 584 588 594 598
(Source: www.amfiindia.com)

Net equity inflow for equity funds has surged by 12.3% on a month-on-month basis and by 9% on a yearly basis. It indicates that despite the markets going through the choppy waters, investors have not stopped adding equity into their portfolio.

Graph 1: Net Equity Inflow (Rs in crore)

(Source: www.amfiindia.com)

Within the equity segment, the steep rise in the number of folios is attributed to a large part of inflows into large-cap funds, multi-cap, mid-cap, and small-cap funds with an inflow of Rs 2582.97 crore, Rs 1,581 crore, 1,068 crore, and Rs 1,307 crore, respectively. There has been a growth of 57% over last month's inflows in small cap funds to increase the overall count of open-ended equity inflows to Rs 9152 crore (as seen in the graph below).

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Graph 2: Net inflow of open-ended equity (Rs in crore)

(Source: www.amfiindia.com)
Note: RHS indicates overall open-ended equity inflow

The investors are unperturbed when it comes to investing in equities even in economic slowdown now which shows the change in investment preference from the old form of investing. The 'Mutual fund sahi hai' campaign has managed to increase the awareness among the masses. This has encouraged them to invest in various equity mutual funds diligently via systematic investment plans.

Graph 3: SIP Inflows (Rs in crore)

(Source: www.amfiindia.com)

In the graph above, from the SIP inflows that dropped marginally but still at elevated levels, it is evident that investors want to reap the benefit of rupee-cost averaging to reduce market volatility coupled with the power of compounding to grow wealth over the long term.

Even the debt funds saw good growth in the number of folios, with the maximum investments in Liquid funds, Ultra-short duration funds, money market funds, Corporate Bond Funds, Banking and PSU funds, and Overnight funds.

Despite the debt crisis leading to credit crisis and losses experienced in the debt fund portfolios of investors. The below table shows a surge in the number of folios across various categories of debt funds for the month of August when compared over 5 months, 3 months, and 1 month.

Table 2: Number of open-ended debt folios and growth over past few months

Open-ended Debt Schemes Aug-19 5-month growth 3-month growth 1-month growth
Overnight Fund 27,066 27% 15% 7%
Liquid Fund 1,642,412 13% 4% 2%
Ultra-Short Duration Fund 638,945 8% 4% 2%
Low Duration Fund 915,412 -1% -1% 0%
Money Market Fund 310,190 9% 6% 3%
Short Duration Fund 284,565 8% 5% 3%
Medium Duration Fund 227,175 -7% -2% 0%
Medium to Long Duration Fund 107,611 4% 3% 2%
Long Duration Fund 24,038 29% 22% 8%
Dynamic Bond Fund 213,482 0% 2% 1%
Corporate Bond Fund 250,280 29% 19% 11%
Credit Risk Fund 534,794 -7% -3% -1%
Banking and PSU Fund 106,041 25% 16% 8%
Gilt Fund 92,198 42% 25% 10%
Gilt Fund with 10 yr constant duration 23,013 121% 58% 21%
Floater Fund 138,704 4% 3% 3%
(Source: www.amfiindia.com)

And in terms of outflows/inflows credit risk funds saw heavy outflow of Rs -2,269.64 crore and the least amount of outflow was seen for Medium to Long Duration Funds.

Table 3: Net Inflow (+ve)/ Outflow (-ve) over past few months (Rs in crore)

Open ended debt Schemes Apr-19 May-19 Jun-19 Jul-19 Aug-19
Overnight Fund 96 2347 -4063 6021 -503
Liquid Fund 89778 68583 -152432 45441 79428
Ultra-Short Duration Fund 11037 1191 -1926 601 2829
Low Duration Fund 4913 -2353 -4689 -223 794
Money Market Fund 6419 3896 -3832 5063 3765
Short Duration Fund 2771 -1316 -607 586 994
Medium Duration Fund -531 -2063 -1159 937 -561
Medium to Long Duration Fund 264 387 -156 -60 -28
Long Duration Fund 8 90 22 59 11
Dynamic Bond Fund 412 -651 -786 -122 -67
Corporate Bond Fund 3874 1430 -131 2573 3578
Credit Risk Fund -1253 -4156 -2695 -3411 -2270
Banking and PSU Fund 2792 3382 799 5914 2769
Gilt Fund -41 -45 197 -120 307
Gilt Fund with 10 yr constant duration 33 -61 45 80 40
Floater Fund 348 233 64 381 40
Total 120920 70894 -171349 63719 91127
(Source: www.amfiindia.com)

As per reporting by the Livemint, Mr N.S. Venkatesh, chief executive, AMFI said, "Mutual fund inflow is critical to maintain buoyancy in the stock markets with foreign institutional investors (FIIs) continuously selling Indian shares due to a host of reasons ranging from macro headwinds to taxation woes. In August, FIIs dumped $2.20 billion of Indian shares in the worst sell-off in 10 months, while domestic institutional investors (DIIs), including mutual funds and insurance companies, pumped in Rs 20,933.59 crore.

The National Stock Exchange's India VIX index, or fear index, which tracks investors' perceptions of volatility, rose nearly 20% in August. Elevated levels of VIX indicate that investors are expecting correction at least over the next month.

However, will continue to witness robust flows and, on the debt side, liquid funds may see volatility owing to quarter-end phenomenon."

In conclusion, PersonalFN is of the view that investors are becoming smarter and wiser in terms of the investment decisions for their long-term benefit.

But when the markets are volatile, going gung-ho and investing heavily in extremely risky equity funds can be hazardous for the investors' portfolios.

One should consider aim to create a diversified robust portfolio based on Core and Satellite approach of investing that will mitigate the market undercurrents.

However, remember to have a clear investment objective in mind, know your financial goals, risk profile, and the time horizon you have for each financial goals before you invest your hard-earned money. Accordingly, you need to invest based on your personalised asset allocation and choose the fund based on the qualitative and quantitative parameters.

Prudent investing and financial discipline are vital measures to take for your long-term financial well-being.

Editor's Note: If you wish to select the worthy mutual fund schemes --both, equity and debt mutual fund schemes -- to address your future financial needs, I recommend that you subscribe to PersonalFN's unbiased premium research service, FundSelect.

With FundSelect, you get access to high quality and reliable funds picked by our research team using their comprehensive S.M.A.R.T. score fund selection matrix.

Each fund recommended under FundSelect goes through our stringent process, where they are assessed on both quantitative as well as qualitative parameters.

Every month, PersonalFN's FundSelect service will provide you with insightful and practical guidance on equity mutual funds and debt mutual fund scheme --- the ones to Buy, Hold, or Sell.

If you are serious about investing in rewarding mutual fund schemes, subscribe to PersonalFN's flagship mutual fund research service FundSelect today!

Happy Investing!

Author: Aditi Murkute

This article first appeared on PersonalFN here.

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.

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