2020 was a mixed bag for mutual fund investors. The year started out with all-time high index levels, but Covid-19 brought the markets down. There were plenty of exits, but those who stayed invested made stupendous gains. Resilience was the buzzword. While equity MFs witnessed the highest-ever outflow of Rs 12,917 crore in November, total assets under management (AUM) surged above record Rs 30 lakh crore.
"2020 was a lesson in investor behaviour. The year started out at fresh highs, followed by a violent stock market crash. But, markets swiftly bounced back and hit fresh highs again. Investors who focussed on basics - portfolio rebalancing, asset allocation etc survived the market crash with good positions. The ones who tried to time the market burned their fingers," says Gaurav Rastogi, Founder, Kuvera.in.
So, will the outflows continue? "With the recent correction and sharp rebound, people may have been rebalancing their portfolios. So, redemptions are not bad," says Radhika Gupta, CEO, Edelweiss Asset Management.
The ETF/index funds gained traction with most people taking to low-cost investment options. Investors were attracted to international investments. "It has been the asset of the year. I expect the trend to continue," says Gupta.
Safer debt instruments
Innovations in debt product offerings are expected to continue in the New Year also. The MF industry launched products with low or negligible credit risk to address investor concerns. The year saw two new series of Bharat Bond ETFs that invested in AAA-rated PSU bonds. Nippon India MF launched a debt ETF that invests in AAA-rated bonds issued by government-owned entities and state development loans. Motilal Oswal 5 Year G-sec ETF is a passive offering in the fixed-income category.
The Securities and Exchange Board of India (Sebi) issued multiple circulars on risk and liquidity management in 2020, but the most noteworthy among them was the one on multicaps and the formation of a new category, flexicap. All multicap funds have to allocate at least 25 per cent of their portfolios in large, mid and small-caps each by February 2021. Flexicap funds will invest at least 65 per cent of the corpus in equity but will have no restrictions on investing in large, mid or small-caps.
Investments via digital wealth management platforms such as Kuvera, Groww and Paytm Money are rising. Even traditional AMCs are equally aggressive on digitisation. "Having witnessed 50k+ transactions in a single digital-only NFO in April this year, we are looking to expand our digital offerings in 2021," says Pratik Oswal, Head of Passive Fund, Motilal Oswal Asset Management Company.
What should you do in 2021?
"There is a lot of noise around markets at all-time highs, and how a correction is imminent. But my advice is to do nothing. This will fetch you more money," says Rastogi of Kuvera. "Stick to basic principles of asset allocation and rebalance your portfolio when required," he adds.
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