Kaustubh Belapurkar, Director of Fund Research at Morningstar Investment Adviser India, spoke to Dalal Street Investment Journal. Below is the excerpt.
FY17 has been a good year for mutual funds in terms of investor participation. How do you think FY18 would be?
FY17 was a great year for mutual fund flows. Investors continued to pour money into debt, allocation and equity funds alike. Equity flows continued to be strong through the year, especially in the second half. The most pleasing aspect was that when the markets corrected, unlike the trend from earlier years of outflows, this time around, investors increased allocation to equity funds. This is a sign of increasing maturity of investors.
Increasingly, investors used the Systematic Investment Plan (SIP) route to invest, with the monthly SIP figure now standing at Rs 4,300 crore, as per AMFI data. We expect this trend to continue in FY18 and beyond. The SIP book should continue to grow and investors having seen a few market cycles should continue to plough money into the markets, especially during corrections.
The effects of demonetisation are also expected to boost flows as investors seek avenues beyond the traditional bastions of real estate and gold.
Overall, we expect to continue to see good flows in funds.
Which category of funds witnessed maximum investments in FY17? Which category of funds are expected to do well during the coming year?
Amongst equity funds, while large-cap funds saw the largest absolute inflows, mid-cap funds and balanced funds continued to receive disproportionate inflows in the year.
Many first-time investors choose the less volatile option of balanced funds to enter the equity markets for the first time. Given that the increasing investor awareness is drawing newer investors into the market, we continue to expect balanced funds will get disproportionate inflows.
Large-cap funds will also see robust inflows while mid-cap funds flows may see a slowdown given the increasing valuations on these stocks.
What investment strategy should be adopted to maximise wealth via mutual funds?
We continue to advocate a methodical asset allocation approach based on their risk-return objectives and investment time horizon. Given the current high valuations of small and mid-cap stocks, investors can choose to marginally reduce allocation to these funds or wait for market corrections for fresh purchases.
SIPs are a good way to go about investing as not only do they mitigate market timing risk, but also instill financial savings discipline. It is also very important to pick funds based on your investment horizon and not be swayed by past performance.
Holding discipline is also key, as markets may go through periods of volatility, but as long as you hold onto to your investment for the required period, there is a high probability of meeting your desired investment outcomes.
What is the ideal number of mutual fund schemes one should hold in a fund portfolio?
An ideal number of schemes in a portfolio should typically never exceed 10 funds. More often than not, this number will suffice to meet your investment requirements, and beyond that, over-diversification may actually be counterproductive.
While constructing your investment portfolio, it is paramount you spend ample time choosing the right set of funds to match your risk-return and investment time horizon. Review your investments on an annual basis, but resist the temptation to redeem funds that underperform in the short term, as every manager will go through bouts of relative underperformance.
Change your portfolio funds only when there is sustained underperformance, change in fundamental attributes of the fund or change in your own investment objectives.
