Equity mutual fund inflows turn positive after 8 months: Are investors rushing back?

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© Sunil Matkar Equity mutual fund inflows turn positive after 8 months: Are investors rushing back?

During the last eight months, investors relentlessly sold equity funds. These funds saw a net inflow of Rs 9,115 crore. Inflows through systematic investment plans (SIPs) also rose to Rs 9,182 crore (the highest amount ever) in March 2021.

Just when we thought that retail investors had started to shun mutual funds and were ready to switch over to investing in equities directly, they’re back. Is this phenomenon temporary or would investors continue to plough money into mutual funds (MFs)?

Investors took to trading

The COVID-19 lockdown was long and hard on many, but the middle class, especially the young investors, also had a lot of time on hand while working from home.

They opened demat accounts and started stock-trading. As per a Moneycontrol report, 10 million new demat accounts were opened in 2020. After the steep fall in March, the stock markets rebounded as early as in April 2020, thus enthusing most investors who hoped to cash in on the sharp rise.

But times have changed. Though there are some parts of the country that may go into severe restrictions or partial lockdowns, economic activities are coming back to normalcy. And although lockdowns are back this week, so has been the vaccination drive. And having endured a brutal (but arguably necessary) lockdown last year, when many livelihoods and jobs were lost, this time around, many experts feel that lockdowns may not last as long. Especially if the vaccination drive picks up.

When the economy fully opens up again, many would be heading to their offices once again and work-from-home will reduce. There is also talk of following a hybrid working model. Therefore, people working in a full-time job may not get as much time as earlier to trade.

Fear of missing out

Experts say that one reason why investors are once again taking the equity funds route is also because many of them sat on the fence all through 2020. The sharp rise of equity markets, which lasted all through last year, took many by surprise. The correction that they expected did not happen till the end of February 2021. A significant chunk of inflows could well be from investors suffering from the FOMO (Fear-Of-Missing-Out) syndrome.

Though there are many factors such as return of lockdowns, rising geo-political tensions, falling rupee value against the US dollar and inflation, which are expected to play spoil-sport for the equities, investors are in no mood to miss out on the possible upside in stock prices.

Vinayak Savanur, Founder and CIO of Sukhanidhi Investment Advisors says, “Looking at the past one year’s returns, investors are feeling left out and they are trying to enter at the first sign of consolidation in the market. The desperation of investors is an outcome of their failed attempt at timing the market last year.”

Clearly, timing the markets doesn’t work. Those who held on to their investments thought of selling them when the markets recovered in the last quarter of 2020, only to see the Nifty making a new high in 2021. “Rarely can you get the timing right. It is better to stay invested in equities for the long term, provided your financial goals permit you to do so,” says Jimmy Patel, CEO, Quantum Mutual Fund.

“Historically, after a year of extremely good returns, stock markets tend to consolidate. Investors should not consider equity investing to be an easy money-making tool,” says Rupesh Bhansali, Head- Mutual Funds, GEPL Capital.

Should you invest in equity funds now or take a pause?

If you are currently investing in equity funds, then continue your SIPs. “Even if you are sitting on a lump-sum, it is better to invest in a staggered manner in diversified equity schemes,” advises D.P. Singh, ED & Chief Business Officer, SBI Mutual Fund.

Also read: Moneycontrol-CRISIL SIP study: How to maximise SIP returns

But do not invest your entire surplus on corpus in equities, even if you see huge corrections in the markets going ahead. Ascertain your asset allocation. If you hold too much of equities and very little of debt and gold, try to move some of your assets to other avenues.

If you can’t really figure out the right asset allocation, a standardised product such as a balanced advantage fund helps. But the balanced advantage funds’ category has many varieties, so it’s not the best choice if you are a direct investor. But if you have an advisor or a distributor to guide you, then perhaps a satellite allocation to such a fund can be considered.

Stay away from sector and thematic funds, unless you have a good understanding of those.