MF Talk: Why retail investors are favouring multi-asset and hybrid funds, Pankaj Shrestha explains

“Investors are now favoring multi-asset and hybrid funds, which provide the advantage of equity taxation. This shift indicates a trend where investors seek to optimize their tax efficiency,” says Pankaj Shrestha, Head - Investment Services, Prabhudas Lilladher.

In an interview with ETMarkets, Shrestha said: “Investors today are more aware that, in the long term, equities tend to give good returns. They see significant market dips as opportunities to invest,” Edited excerpts:

Equity flows almost doubled in May 2024. What could have led to the rise in the flows?

The primary driver behind the nearly doubled equity flows in May 2024 was a significant surge in inflows within the Sector and Thematic categories, which reached ₹19,213 crore compared to ₹5,166 crore in April.

Notably, the HDFC Manufacturing Fund's thematic NFO alone attracted nearly ₹9,500 crore in May.

SIPs also topped nearly Rs 21,000 cr. Can some of it be attributed to top up or additional SIPs done to factor in election day volatility?

SIP numbers have been on an uptrend over the past few years The increase this month can be partly attributed to investors opting for SIPs to manage election day volatility, as many prefer to position themselves through the SIP mode during major events like elections.

Despite volatility in the broader market space – small & midcap funds attracted 2700 cr but not so much in the largecap space which most experts are advising now. What are your views?

This trend can be attributed to the small and midcap categories delivering nearly double the returns of the largecap index over the past year, leading many investors to exhibit a recency bias in their investment decisions.

Even the fixed income space fell more than 70%, but strong inflows were seen in liquid funds. What is the trend that you are seeing in the fixed income space given the fact that equity markets are trading near record highs? Do you see some churn?

The amendment to the Finance Bill 2023, which eliminated the indexation benefit for debt mutual funds, has discouraged investors from investing in medium to long-duration debt mutual funds.

Instead, these investors are now favoring multi-asset and hybrid funds, which provide the advantage of equity taxation. This shift indicates a trend where investors seek to optimize their tax efficiency.

In terms of NFOs there were many index funds, as well as thematic funds, were launched. What is fueling the trend?

The trend of launching numerous index funds and thematic funds in New Fund Offers (NFOs) is primarily fueled by investor demand for specific investment strategies and themes.

Index funds offer a low-cost, passive approach to replicate market performance, appealing to cost-conscious investors.

Thematic funds cater to investors seeking exposure to specific sectors or trends expected to outperform, reflecting a growing appetite for niche investment opportunities.

Retail investors are now becoming more aware of when to put the money and this is evident from the fact that most investors wanted to buy the dip post election results. What are your views when you interact with the clients?

Yes, investors today are more aware that, in the long term, equities tend to give good returns. They see significant market dips as opportunities to invest.

Additionally, they maintain a long-term perspective on equities, which helps them avoid panic selling during market downturns.

This increased awareness and strategic approach, particularly evident during major events like election results, indicate a more informed and resilient investor mindset.

What would you advise investors for the month of June? Investors should consider staggering their equity investments over six months through Systematic Investment Plans (SIPs) or Systematic Transfer Plans (STPs).

Additionally, one can consider investing in Hybrid categories like Multi-Asset and Balanced Advantage funds for a more diversified approach.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

For more news like this visit The Economic Times.