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Mutual funds add Rs 7-Lakh Crore to Kitty in 2021;  Omicron, possible rate hikes red flags for 2022

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Mutual funds add Rs 7-Lakh Crore to Kitty in 2021; Omicron, possible rate hikes red flags for 2022

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Mutual funds as an investment avenue gained investor confidence in 2021 with the industry adding Rs 7 lakh crore to their asset base during the year on the backs of the markets dynamic stock markets and a bunch of new fund offerings (NFOs), but the New Year could be tricky depending on Omicron’s situation and possible interest rate hikes. While it may not be an easy financial environment in 2022, some experts are hopeful that the impact of the Omicron variant of the novel coronavirus may not be as severe as those seen in the first two waves of the pandemic.

“To a large extent, the world has learned to live with COVID and, as such, with the rapid vaccination coverage in India, Omicron’s impact on the economy is not expected to be as devastating as previous waves l ‘were,’ said Suresh Soni, CEO of Baroda mutual fund. Low interest rates, increased awareness of mutual funds and good investment performance will be the factors that will contribute to the increase in assets under management (AUM) in the future, he added.

Assets under management of the mutual fund industry rose 24% to a record high of Rs 38.45 lakh crore in 2021 at the end of November itself, up from Rs 31 lakh crore at the end of December 2020, data available from the Association of Mutual Funds in India (Amfi) has shown this. Vidya Bala, co-founder of Primeinvestor.in, believes the final number of mutual fund assets under management at the end of December could settle a little lower or flat with a cycle of consolidation underway.

There could be debt outflows due to tax prepayments in December, said Himanshu Srivastava, associate director, research director, Morningstar India. Assets under management for 45 members of the mutual fund industry experienced a relatively lower growth rate of 17% in 2020. Additionally, 2021 would mark the ninth consecutive annual increase in industry assets under management following a decline over the previous two years.

The number of investors is estimated to have increased by 2.65 crore during the year. In 2020, just over 72 lakh folios were added. While 2020 was a year marked by stock market corrections and high liquidity needs of individuals and businesses due to uncertainties related to Covid, experts believe that the negative impact of the pandemic was less in 2021 and that influx saw a rebound.

Swapnil Bhaskar, Chief Strategy Officer Niyo (Generation Y neo-banking fintech) said the main reason for the impressive growth in the asset base is the high liquidity in the market which has been driven by monetary policy. leniency across the world and the growing participation of retail investors nationwide. In addition, asset management companies (AMCs) have launched more than 100 NFOs with different investment ideas, which further led to the surge in assets under management, said Jimmy Patel, CEO of Quantum Mutual Fund.

Growth in assets under management has also benefited from mark-to-market as the sector holds a significant share of equity, said Radhika Gupta, MD and CEO of Edelweiss Asset Management. Mutual funds recorded net inflows of Rs 1.93 lakh crore in 2021 (through November). This included Rs 71,600 crore in equity plans and Rs 14,500 crore in debt plans.

As interest rates moderate, investors are looking for options beyond traditional channels. In addition, the increased awareness of mutual funds has helped boost the participation of retail investors in the mutual fund industry, said Amfi President A Balasubramanian. Equity-focused mutual funds recorded a net inflow of Rs 71,600 crore during the year, marking a several-fold jump from Rs 9,410 crore of the net inflow seen in 2020.

Equity programs have seen constant net inflows since March 2021. Prior to that, the category recorded net outflows of around Rs 46,791 crore for eight consecutive months from July 2020 to February 2021. Srivastava said the Market correction at the start of the second wave of the pandemic was the trigger for investors to make a comeback in equity-based mutual funds.

“Vaccination campaigns across the country and the ease of foreclosure restrictions have allowed the economy to rejuvenate and promote trade, leading to a bullish stock market. As the repo rate was lowered in May 2020 to an all-time low and has remained unchanged since then, this has led investors to rely on equity instruments as well, ”said Priti Rathi Gupta, Founder of LXME . Fortunately, markets have continued their bullish movement since March, bolstering investor sentiment. It also prompted investors to invest more rather than miss out on opportunities.

In addition, rising stock markets and low returns from traditional investment avenues like bank FDs (term deposits) and real estate are the other factors attracting investors to equities, said Patel of Quantum Mutual Fund. . From 2022, Primeinvestor.in’s Bala said that equity inflows will be entirely dependent on whether the market recovers or not. Any correction can trigger capital outflows, so the call will be to monitor interest rate movements, the overall result thereof and its impact on Indian markets.

“There are certain factors that could impact short-term flows for stocks. One of the main factors would be how the Covid scenario plays out with regard to the Omicron variant of the coronavirus. The third wave of the pandemic, if it takes hold, could be another problem and could trigger profit taking, ”said Srivastava of Morningstar India. He said that except for a few temporary setbacks, investor interest in equity-focused mutual funds is unlikely.

SIPs or systematic investment plans, which have formed the basis of mutual fund flows for many years, have seen a collection of Rs 1.03 lakh crore, well above the Rs 97,000 crore mobilized in 2020. The contribution Monthly SIP rose from Rs 8,023 crore in January to a record high of Rs 11,005 crore in November.

The figures suggest that investors have gradually started to appreciate the concept of disciplined investing that can be achieved through SIPs. Amfi’s Balasubramanian believes that investors will continue to invest through SIPs given the simplicity, convenience and attractive long-term performance.

In contrast, debt funds, often seen as a safe bet, were not the highlight of the year as investors explored other avenues to invest in them, anticipating interest rate risk. The segment saw a net inflow of Rs 14,500 crore in 2021. Bala said 2022 could be a year of debt if yields tighten amid growing prospects of a rate hike.

With a net inflow of over Rs 4,500 crore in 2021, gold exchange-traded funds (ETFs) continued to gain the attention of investors throughout the year, and it is also to this at which point the stock markets accelerated. This indicates that investors like the yellow metal as part of their investment portfolio. Gold, with its exceptional performance in recent years, has aroused significant interest from investors and the steady rise in their number of portfolios is testament to this.

This year, the number of folio in gold ETFs increased from 8.87 lakh in December 2020 to 29.3 lakh in November 2021. In 2022, the category should continue to show interest amid persistent inflation and the Federal Reserve trying to catch up, possibly disrupting growth. and the markets, ”said Patel of Quantum MF. “That said, the Fed’s tightening of monetary policy will support the dollar and US yields, which will be headwinds for gold. The warring forces will keep the gold in a consolidating mode for a period of time, which will allow investors to accumulate gold, ”he added.

During the year, market regulator Sebi took numerous steps for the industry, including a two-tier benchmarking plan for mutual funds, the introduction of ETFs on silver and the process of setting up the disclosure of mutual funds with the ESG (environmental sustainability and governance). Industry experts believe these steps would bring greater transparency, which will help investors build confidence in mutual funds and make informed investment decisions.

However, one circular that is questionable is Sebi’s framework on aligning the interests of key CMA employees with unitholders of the mutual fund system. The framework takes away the freedom of financial planning in addition to dramatically unbalancing the cash flow planning done so far, Patel said.

“Every mutual fund offering comes with a disclosure of risk – and ‘skin in the game’ is not a proven way to reduce investor risk or increase the certainty of an investor. best result. This will seriously affect the ability to attract and retain talent from small AMCs, ”he added. The new year could see a few new mutual fund companies hitting the market and those companies will focus on filling the gaps in the market by offering new products, Niyo’s Bhaskar said.

“We expect global diversification and passive investing to continue to be emerging and sustainable trends,” he added.

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Mutual funds add Rs 7-Lakh Crore to Kitty in 2021; Omicron, possible rate hikes red flags for 2022

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