With the benchmark indices slipping more than 15% and broader indices over 20% in less than six months, there is a palpable sense of fear among first-time mutual fund investors. And, there is good reason for this.
Nearly 60% of the mutual fund plans – 131.3 million MF folios out of the total of 229.1 million, according to data from the Association of Mutual Funds in India (Amfi) – have been opened after April 2021 and these investors have not experienced such a protracted and significant market correction before.
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These investors have had a fabulous three-and-a-half years till the end of September 2024, a period when the Nifty rose by a whopping 78.5%. Thereafter, a spate of bad news such as the falling GDP growth rate, the beginning of the US Federal Reserve’s rate cut cycle, Donald Trump’s re-election as US president, and proposals to impose tariffs led to a steady decline in the market indices. In February, the 50-stock benchmark recorded five consecutive months of fall, the longest since its launch in 1996.
During this period, while foreign institutional investors pressed the exit button, domestic mutual funds kept investing aggressively, buoyed by a steady flow of funds into systematic investment plans (SIPs).
However, while the collections from SIPs have hit new highs, the average monthly growth in the number of folios tapered off from around 6 million in September and October to 4.2 million in December and January. Worse still, SIP closures were higher by 514,000 than new registrations in January.
The rate of MF folio additions is likely to come down further after this correction, believe Aashish P Somaiyaa, CEO of WhiteOak Capital, and Akhil Chaturvedi, executive director of Motilal Oswal AMC.
Chaturvedi said if the returns continue to be negative, investors may adopt a “wait-and-watch” stance. Somaiyaa said that while the correction may continue for the next couple of months, things should calm down thereafter. “Due to the dollar appreciating, some re-allocation is being made to the US market causing the emerging markets to fall,” he said.
However, he expects the dollar index to come down in a month or two. According to him, despite the pain in broader markets,
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