Equity mutual fund inflows dropped 26% in February, falling to Rs 29,303 crore from Rs 39,687 crore in January, according to the Association of Mutual Funds in India (AMFI). Market volatility is seen as the main reason behind the decline, as investors remain cautious.
Debt mutual funds also witnessed outflows of Rs 6,525 crore in February, reversing the Rs 1.28 lakh crore inflow in January.
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Despite the decline, sectoral and thematic funds attracted Rs 5,711 crore, making them the top choice among 11 equity mutual fund categories, followed by flexi-cap funds, which saw Rs 5,104 crore in inflows.
With mutual fund inflows slowing down, experts suggest alternative investment options for those looking to diversify their portfolios and manage risk effectively.
HYBRID FUNDS
Hybrid funds such as equity savings funds, balanced advantage funds, multi-asset funds, and asset allocator funds provide a mix of equity and debt, reducing risk while maintaining potential returns.
Sachin Jain, Managing Partner at Scripbox, believes these funds are a good option in the current market. He explains, “Funds like equity savings funds, balanced advantage funds, multi-asset funds, and asset allocator funds make a lot of sense.”
FIXED INCOME PORTFOLIO
Jain also advises that investors with an annual income of up to Rs 12 lakh should consider fixed-income investments, as they offer a 7.5-8% yield. “Under the new tax regime, for people within the Rs 12 lakh annual income bracket, a fixed-income portfolio is a very decent alternative because a 7.5-8% yield is again a very good option for these investors,” he said.
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For those seeking stable returns, high-rated corporate bonds and fixed deposits can be reliable options.
Raghvendra Nath, MD of Ladderup Asset Management, points out that these investments provide predictable returns, making them attractive in uncertain market conditions. “For investors seeking fixed returns in this volatile market environment, high-rated corporate bonds and fixed deposits can be attractive alternatives,” he said.
GOLD AND SILVER ETFS
Investing in gold and silver-based funds or ETFs can help investors reduce overall risk and diversify their portfolios.
Nath suggests that allocating a portion of investments to gold and silver can act as a hedge against market fluctuations. “Additionally, allocating a portion of the portfolio to gold and silver-based funds or ETFs can help diversify investments and mitigate risk,” he added.
While inflows into mutual funds have dropped, experts advise against completely withdrawing investments. Instead, continuing systematic investment plans (SIPs) can help in rupee cost averaging, allowing investors to buy more units when prices are low.
SHOULD YOU STOP INVESTING IN MUTUAL FUNDS?
Jain explains the importance of staying invested, saying, “Mutual funds invest into diversified sectors and stocks. A decent mutual fund will not have more than 2-3% exposure to a single stock. The probability of losing a large quantum of capital increases only if the investor exits when markets are experiencing a sharp correction. On the other hand, the probability of the portfolio bouncing back with market recovery is very high.”
Jain warns against high exposure to mid-cap, small-cap, or thematic funds, as their volatility can lead to hasty decisions. “Since emotions play a very important role in investing, there is no point in taking very high risk into mid-cap, small-cap, or thematic categories at this point in time. Heightened volatility may force the investor to take wrong decisions,” he said.
He also advises against completely staying out of the market, as this can lead to missed opportunities. “Sitting out also doesn’t work in an investor’s favour. Hence, hybrid funds make a lot of sense,” he added.
Nath reinforces the importance of diversification, saying that investors should look at a mix of hybrid funds, fixed-income options, and precious metals to manage risk effectively.
“Market corrections may prompt a re-evaluation of investment strategies, but they do not necessarily warrant a complete halt in mutual fund investments. Instead, they offer opportunities for strategic adjustments and diversification,” he said.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
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