As a result of the increased volatility seen in Indian stock markets during April 2022, retail investors reduced the amount of money they invested in mutual funds. Considering how volatile the market continues to be, they decided to be extra cautious with their money.
As per the ‘Outlook India’ headline ‘The high valuations and volatile market have contributed to a 40% decline in equity fund inflow’. (Source: outlookIndia.com)
Why did the mutual fund market fall in early 2022?
The fall in stock prices in May has eroded the assets under management (AUM) of many equity mutual fund categories. There has been a lot of volatility in the Indian equity markets during the last several months.
- Domestic events like the Budget Announcement and the Reserve Bank of India (RBI) monetary and fiscal policy report weigh on the market, but so do potential interest rate hikes by the US Federal Reserve and escalating tensions between Russia and Ukraine.
- A downturn in the global equities markets, including India’s, has been caused by all of these causes.
In January 2022, inflows into equity-oriented funds saw a steep decline, resulting in a net flow of Rs 14,887.77 crore. This decline was in line with the decline seen in the market. (Source: Outlook India)
- Although the proliferation of the Omicron variant led to market corrections, equity-oriented mutual fund schemes saw the largest net inflows (Rs 25,076.71 crore) in last year 2021. (Source: Outlook India)
- The reduction in equity inflows has also been attributed by experts to increased valuation and volatility in the equities markets.
- The economy has been put under considerable strain due to worries about new varieties all over the world, relatively high valuations, and an increase in costs.
- A record inflow of Rs 2,762.95 crore went into mixed schemes in January, with balanced advantage plans once again taking the lead. (Source: Outlook India)
- Topping the list with a total inflow of Rs 1,539.80 crore were equity hybrid funds, also referred to as “balanced hybrid funds.” (Source: Outlook India)
- Especially in unpredictable markets, investors prefer these two investment options over pure equities. To avoid a rate increase, many retail investors use a rotational investment plan that shifts their funds into the hybrid category.
- According to the consultants of mutual funds, investors should not get out of the market or stop investing just because there are so many unknowns.
- Debt mutual funds have shown to be a great asset class for hedging investors’ portfolios against equities market declines and volatility in the past years as well (2018-2020)
As a result of rising interest rates
After the pandemic, central banks around the world pumped large amounts of cash into their economic systems in order to save the economy from collapsing.
- This was a positive sign for the stock market, and it indicated the beginning of a liquidity-driven rise that would last for a considerable amount of time.
- A rise in interest rates has been signaled as a result of central banks becoming concerned about inflation rising.
- The Federal Reserve of the United States has previously stated that it intends to reduce the amount of bonds it purchases on a regular basis.
- According to the opinions of various analysts, the Reserve Bank of India (RBI) may also announce a shift in their position during the upcoming policy meeting.
Where will equity mutual fund investors be in the future?
- In spite of the fact that the market could be volatile in the near future, market analysts predict that the decline will not be more than 5–6 percent and that the market will recover in the near future.
- At this moment, many fund managers and consultants are advising new investors in equities mutual funds to put their money into funds that either specializes in Balanced Advantage or Dynamic Asset Allocation. SIPs should be continued, but the valuation should be kept in mind.
Things that Affect Mutual Fund Performance
Popular stocks sold and bought by Mutual Funds
Despite signs of decline in mutual funds, investors’ faith in these instruments remains unshakeable. If we look at the data from April 2022, then we will have an easy time determining which stocks were the most popular among mutual funds to sell and buy during that month. Let’s take a brief glance at the table that has been provided below.
(Please note that the material contained in this article is only intended for educational purposes. No one should regard this as a stock recommendation. Kindly learn or consult expert for investment related activities. Data sources: Outlook India, personalfn.com)
Investors who do their homework on mutual funds will find a wealth of information available to them in the public domain.
- After reaching record highs the month before, equity mutual fund inflows plummeted by 44% in April 22. Equity market volatility is to blame for the lowest net inflows in three months, which came in at INR 15,890 crore.
- Though the net inflows were higher than a year ago. Equity mutual fund inflows have been volatile, but they have remained steady over the last six months, totaling over Rs.11,000 crore per month.
- This shows the faith of investors in the mutual funds at large. This decline might have some short term tension but in the long as the stock price would start recovering, the mutual fund portfolio would also start to gain some notable profit.
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