An Overview of June’s Performance
According to SEBI data, the gross acquisition of equities by domestic fund managers in the secondary market was Rs. 83,006 crores in June, compared to a five-year average of Rs. 58,187 crores. After Rs 1.2 lakh crore in March 2020, the gross acquisition in a single month in June was the second largest.
Mutual funds with equity exposure include market funds, index funds, ETFs, and other equity funds for secondary market trades. Despite the sale by foreign funds, domestic funds chose to raise their allocation. The increased purchase pushed the gross buy-redemption ratio of local funds to 1.08 in June 2021, a tad higher than the long-term average of 1.06, indicating that redemption pressure was easing.
In June, local funds deployed Rs. 6,437 crores in stocks, the highest level in 13 months. Local funds were net buyers in shares for the fourth month in a row. Their total net investment of Rs. 17,212 crores was somewhat greater than international portfolio investors’ inflow of Rs. 15,083 crores during the same time.
According to NSDL data, the equity assets under management (AUM) of local funds surged to a record Rs. 16.6 lakh crores in June 2021, a rise of 55 percent in a year, as a result of continued finance delivery and capital appraisal. It accounted for 7.6% of the total market capitalization of Indian stocks.
Mutual funds are attracting investors thanks to a strong rally
The net inflow into mutual funds in June was roughly Rs. 6,000 crores, down from Rs. 10,082 crores the previous month as many investors took profits as the markets rallied sharply. The category has had net inflows for eight months in a row before March of this year.
As the total number of SIP accounts passed the 4-crore mark, new investors are investing in mutual funds through the systematic investment plan (SIP) approach. SIP assets under management (AUM) accounted for over 15% of total sector AUM in June, with a contribution of Rs. 9,155 crores.
Except for ELSS and value finance, all markets-oriented categories saw net inflows in June, showing that domestic investors are increasingly favouring Indian shares.
Solid quarterly results and a long-term profits growth expectation have allayed fears of a major economic impact from the second wave of the pandemic. Investor optimism was also buoyed by a jump in markets despite obstacles. As a result of these factors, they have re-allocated assets to equities.
Mid-cap funds are gaining ground
With Rs. 1,729 crores and Rs. 1,207 crores in June, respectively, the mid-cap fund category and sector/thematic funds are garnering considerable investments. Even flexi-cap funds, which invest in a variety of markets, saw a net inflow of Rs. 1,087 crores in the month. In June, net inflows to small-cap funds totalled Rs. 705 crores, while net inflows to large-cap funds totalled Rs. 547 crores.
Mid-cap funds invest in stocks of firms with a market capitalization of between 101 and 250 billion dollars. While mid-cap funds provide higher returns than large-cap funds, they are also more volatile and hazardous. Individuals with a high risk appetite should look for attractive investment possibilities before investing in mid-cap funds.
Medium risk-takers should stick to large-cap funds. Investors must choose a mid-cap or small-cap mutual fund after analysing the fund house’s set-up, share selection and performance of the fund manager, and the fund’s conviction over time.
Funds using a dynamic asset allocation strategy
In June, individual investors poured Rs. 2,057 crores as they sought a balanced approach to equity and debt investments, as well as well-diversified assets, especially in an unpredictable market. Furthermore, investors continued to choose arbitrage funds, with a net inflow of Rs. 9,059 crores in the month, as returns from liquid funds fell due to very low yields.
The market regulator does not prescribe a minimum or maximum limit for debt or equity investment in dynamic asset allocation funds. When the investment parameters are favourable, the fund management increases the exposure to stocks, and when they are not, the fund manager reduces it.
The primary goal of these funds is to use valuation models to strategically remodify portfolios between shares and constant income in order to provide investors with higher risk-adjusted returns. Dynamic asset allocation funds are a solid alternative for investors in the current market.