Why equity mutual funds are back in fashion

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For the first time since February of last year, confidence among the investor fraternity has increased dramatically

Markets are trading at lifetime highs, supported by good quarterly results, an improving economic outlook and a drop in Covid cases.

Against this backdrop of fairness, mutual fund investors, after months of withdrawing money, have stepped up their investments as confidence among the investor fraternity soars. For the first time since February of last year, equity mutual funds registered an influx of 10,000 crore in May 2021. Redemption pressure is also decreasing. The best is yet to come.

Many were afraid to buy during corrections due to high volatility, but with lower volatility, those on the sidelines took the bullish train. Investors have realized that the longer they wait, the more they will miss out on dividends and growth. The underperformance of debt funds also contributed to the enthusiastic attitude of equity investors. It should be noted that the debt category reported outflows of Rs. 44,000 crore in May 2021.

The gradual decline in Covid cases has also had a calming effect on investor sentiment. This has made investors risk-averse, and they are allocating more money to equity mutual funds. Investors flock to hybrid funds because they are not as risky as equity funds. Hybrid funds invest 65 percent in stocks and the remainder is invested in debt securities. The hybrid debt fund invests 60 percent or more in debt and the remaining amount is invested in stocks. Hybrid formulas such as dynamic allocation or balanced funds recorded good inflows. In May 2021, hybrid schemes reported inflows of over Rs. 6,000 crore.

Perhaps one of the most important factors contributing to a renewed interest in equity is the change in the perception of risk. What’s interesting is that a class of investors who have found solace in the safety of term deposits have now started to accept risk for higher returns. It should be noted that bank deposits rose 9.7 percent as of May 21 from around 11 percent a year ago. Investors realize that long-term growth comes from dividends and interest. Thus, equity and hybrid funds are experiencing renewed interest from investors.

Remember, the markets will never make perfect sense. If you have a long-term goal, the timing doesn’t really matter. The markets may not go up ad infinitum, but the history of the past 50 years makes it clear that long-term investing always wins, no matter where the market is today. By investing via SIP, one can also profit from the average costs if the markets correct by 5 to 10%.

However, while investing, one must take into account his appetite for risk and invest accordingly. The universe of mutual funds is vast. This can sometimes seem confusing. While equity and hybrid funds offer opportunities for capital appreciation, it takes expertise to assess them. It is best to seek the advice of a qualified financial planner who understands the details of the markets. It can help you design a strategy to create a weatherproof wallet that will stand up in all seasons. A successful investment is all about capital appreciation by creating a balanced portfolio.

The author is the founder, Investonline.in

DISCLAIMER: Opinions expressed are those of the author and Outlook Money does not necessarily endorse them. Outlook Money will not be responsible for any damages caused to any person / organization directly or indirectly.

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