Investing strategy for mutual fund investors ahead of Lok Sabha poll result

Mutual Fund Investment: Stock market and mutual fund investors, analysts said, need to be wary about rich valuations in equity markets at this point

Mutual fund investing: Mutual fund investors have found themselves in the crosshairs of widespread offloading of stocks by foreign institutional investors (FIIs), expensive valuations of the Indian markets compared to global peers, and nervousness ahead of the 2024 Lok Sabha elections' results.

The benchmark S&P BSE Sensex has slipped nearly 1,400 points (1.8 per cent) month-to-date (MTD) in May, while the Nifty50 index has declined 387 points (1.67 per cent) during the period.

Further, the S&P BSE MidCap index has shed 1 per cent thus far in May, while the S&P BSE SmallCap index has slipped 2.43 per cent.

 

While stock market investors, analysts said, should brace for volatility ahead and remain stock-specific, mutual fund investors, they suggest, may consider a staggered investment approach at current market levels.

Stock market and mutual fund investors, they added, need to be wary about rich valuations in equity markets at this point, and should acknowledge potential risks ahead.

SIPs in Index Funds and Flexi-Cap Funds, suggested Vishal Dhawan, founder of Plan Ahead Wealth Advisors, could be a good approach to take when allocating money to mutual funds at this point to get the benefits of rupee-cost averaging with equities.

"In certain categories, like Balanced Advantage Funds, where equities and debt are combined together in different mixes, a lump-sum may be considered," he added.

An index fund typically invests in stocks that imitate a stock market index like the Nifty50, and S&P BSE Sensex. These are passively managed funds where the fund manager invests in the same securities as present in the underlying index and in the same proportion.

On the other hand, flexi-cap funds are open-ended, dynamic equity funds which invest a minimum of 65 per cent in equities across companies with varied market capitalisation.

According to Association of Mutual Funds in India (Amfi) data, the MF industry's net asset under management (AUM) reached Rs 57.3 trillion in April, with systematic investment plan (SIP) accounts touching 87 million.

Gross inflows

The MF gross inflows through the SIP route also topped the Rs 20,000-crore mark for the first time in a calendar month as investors opened a record 6.4 million SIP accounts.

Liquid Funds saw net inflows of Rs 1.02 trillion, Low Duration Funds saw inflows of Rs 7,757.5 crore, Short Duration Funds Rs 2,533.4 crore, Medium Duration Funds (-)Rs 425 crore, and Long Duration Funds Rs 580 crore in April 2024, as per Amfi data.

Market-capitalisation wise, large-cap funds saw net inflow of Rs 357.56 crore, mid-cap funds Rs 1,793 crore, and small-cap Funds Rs 2,208.7 crore in April.

Gilt Funds, meanwhile, saw net inflow of Rs 5,210 crore; Hybrid Funds' category Rs 19,862.9 crore; and Other Schemes' category (including index funds and ETFs) Rs 11,504.9 crore.

S Naren, executive director and chief investment officer at ICICI Prudential AMC, meanwhile, advised investors to opt for hybrid/asset allocation strategies like multi-asset allocation, aggressive hybrid, balanced advantage or equity savings offerings.

“For those considering incremental allocation to equities, we believe large-caps are better placed than mid- and small-caps given the relatively attractive valuations and the better margin of safety,” he said.