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It’s time to nibble at mid & small caps, advise experts.

 

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Indian equities have bounced back after a steep correction in oil prices. Over the past month, stocks are moving up and have outperformed developed markets as oil prices crashed nearly 25 per cent. Interestingly, mid and small-cap stocks that fell sharply in June and September quarters have outperformed the broader market since October 1 after analysts started advising investors to go bargain-hunting in them.

After a deep correction, many midcap stocks are looking attractive, according to analysts. “The current correction has given an opportunity to invest in quality businesses at reasonable valuations after a long spell of over-valuation. As small caps and midcaps are down more than 30 per cent, one can start bottomfishing in quality companies but avoid averaging stocks whose fundamentals have deteriorated significantly,” IIFLNSE -1.05 % said in a report.

 

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The BSE Midcap index, which fell 13 per cent and 4.5 per cent in June and September quarters, respectively, has gained 0.65 per cent since October

Equity mutual fund folios surge; rise 30% in last one year

The number of folios in equity schemes till October stood at 4.87 crore against 3.73 crore in October last year, an increase of 1.14 crore folios

 

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For equity linked saving schemes (ELSS) folios increased by 19.81 lakh, while for balanced funds it went up by 14.26 lakh. (Reuters)

Indian mutual funds have seen a rise in equity folios in the last one year, despite equity markets being volatile.

The number of folios in equity schemes till October stood at 4.87 crore against 3.73 crore in October last year, an increase of 1.14 crore folios, or a 30.56% increase. For equity linked saving schemes (ELSS) folios increased by 19.81 lakh, while for balanced funds it went up by 14.26 lakh.
Total folios for ELSS as in October stood at 1.11 crore and for balanced schemes it’s 63.36 lakh. Folios are number designated to individual investor account and one investor can have multiple folios for their equity funds. Market participants say that, rise in folios is largely due to the continuous inflows into the equity funds in the last few months. Total folios for all the scheme as on October stood at 7.90 crore as against 6.31 crore as on October, 2017 growth by 1.58 crore.

“Despite uncertainty in the equity markets, inflows into equity funds have remained strong. However lately we have seen new SIPs (systematic investment plans) slowing down as markets went down in the month of September and October. If markets continue to fall from the current levels we could see inflows into equity fund going down which could also bring down number of folios,” said senior official from a leading fund house.
In the past one year, Nifty Mid cap index and Nifty Small cap index have given negative returns of 12.6% and 28.1% respectively. While, average returns of Midcap funds is -10.70% and Small cap scheme is -15.35% in the last one year, show data from Value Research. While Nifty is up by about 2.7% in the last one year.
The number of new SIPs registered in October stood at 9.35 lakh, the slowest addition in six months. Between May and September, 10 lakh new SIPs were added every month, contributing to the assets of mutual funds. However, in October the numbers have slipped slightly.
In terms of value, the contribution SIPs, however, continues to increase. Data from the Association of Mutual Funds in India (Amfi) show that the total SIP contribution between April and October at Rs 52,472 crore.

SIPs is an investment plan offered by fund houses wherein investors can invest a fixed amount in a mutual fund scheme periodically at fixed intervals – say once a month instead of making a lump-sum investment. SIPs are similar to a recurring deposit where you deposit a small or fixed amount every month. In the past three-four there has been surge in SIPs as equity markets touched new high. In the financial year, 2016-17 total SIP contribution in the industry was Rs 43,921 crore. While it increased to Rs 67,190 crore in financial year 2017-18, shows the data from Amfi.
However, we have seen investments through lump-sums slowing down in the last few months. In the month of October, equity mutual funds (which includes, equity, ELSS and arbitrage funds) saw inflows of Rs 14,783 crore, highest since February 2018.
But the average monthly inflows into equity schemes in first seven months fell to Rs 10,751 crore from Rs 14,200 crore in 2017-18. Overall mutual fund industry saw inflows of Rs 35,529 crore in October, shows the data from Amfi.

Don’t worry if your SIPs are in red now, think long term

Monthly inflows into mutual funds through systematic investment plans (SIPs) hit an all time high of ₹7,985 crore in October through 2.49 crore SIP accounts. The sharp market corrections over the past one year have turned SIP returns negative, which should not worry investors if the time horizon is over seven years

I have completed a year of my SIP investments in a large-cap and midcap fund. However my returns are negative. What should I do?
Investors should invest using the SIP route in equity mutual funds to meet their long term financial goals with a time frame of at least 5-7 years. In the short term, returns could be disproportionate when annualised. For example, in 2017, we saw one year SIPs of mid-cap funds delivering as high as 30-40% return, while currently, some SIPs in the same funds are showing negative returns. Over the long term the equity markets will go through a number of ups and downs, and during these times, they are bound to see negative returns. Eventually analysts believe returns follow nominal GDP growth rates. Hence investors should continue their SIPs without worrying about one year negative returns.

I will continue with my SIP amount every month. Should I change my scheme since it has given me negative returns in the last one year?
Ideally investors should give the fund manager 3-5 years to perform and should not judge performance in a year or so. If the fund underperforms its benchmark even over a three-year period, then investors could take a closer look at it and shift to another fund. Alternatively, if the mandate of the scheme or the fund manager has changed, they should discuss this with a advisor before arriving at a decision.

How long should I continue my SIP for?
Financial planners suggest investors link each SIP they do to a particular goal and continue with the SIP till the goal is reached. Most fund houses stipulate a minimum time frame of six months for the SIP. Distributors often suggest a perpetual SIP for operational

Should I add more money to the same fund, even if the SIP returns are negative?
Use the downturn in the markets to increase your equity allocation. If there is a salary raise, increase your SIP amount proportionately by using a top up facility provided by the fund house. Do not be disturbed just because the scheme is giving negative returns in the near term. Salaried employees get an annual raise every year. It is important that as your income grows, the amount of investment should grow in tandem.

Individual investors overtakes institutional investors in MF AUM

 

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Individual investors hold 53% of the MF assets as of October 2018.

The latest AMFI data shows that individual investors have overtaken institutional investors in terms of MF holdings as they hold 53.3% of MF assets in October 2018 compared to 49% a year ago. For long, institutional investors have dominated the MF landscape but from December 2017 the balance has shifted favour of individual investors.

Individual investors include retail and high networth individuals.

Along with the individual investor story, the equity story also seems to be reigning supreme. AMFI data shows that 67% of the individual investor assets are invested in equity schemes and only 26% are invested in debt-oriented schemes, indicating a clear preference for equity amongst individual investors. Further analysis of equity assets of MF reveals a similar picture. Out of the total equity assets, 87% come from individual investors while the share of institutional investors in equity assets is just 13%.

The sustained rally in equity markets since 2013 is an important factor contributing to the increased interest in equities. In addition, AMFIs investor awareness initiative ‘Mutual Funds Sahi Hai’ has helped generate curiosity about mutual funds amongst retail investors across geographies. Also, advisors and distributors have played an important role in channelizing this interest into mutual funds in form of SIPs, said experts.

This have brought about regular stream of investments in the MF industry. As of October 2018, MF receive monthly SIP inflows to the tune of Rs. 7,985 crore, an increase of 42% in a year. Importantly, these inflows have held up despite volatility in both equity and debt markets. Some experts also attribute this stickiness to the TINA factor namely ‘there is no alternative’. With bank FDs offering lower returns, real estate and gold showing no significant appreciation in value, investors continue to invest in equities with a view to create long term wealth.

Will this investor interest sustain despite ongoing volatility in equity markets, let us hope it will.


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