The large and midcap funds are likely to be a big draw for investors in the coming days amid increased volatility in domestic markets following escalating geopolitical risks and global uncertainty. The possibility of having a diversified portfolio coupled with good returns is attracting investors to such funds, according to a press release by ICRA Analytics.
Large and midcap funds have witnessed over five-fold growth in assets under management (AUM) over the last five years at Rs 2.57 lakh crore in July against Rs 0.50 lakh crore in July 2019. The compound annualised returns on large and midcap funds are 44.07% in one year, 21.85% in three years, 23.67% in five years and 16.40% in seven years.
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People prefer investing in such funds as it helps in portfolio diversification and also enables them to reap the benefits of the growth potentials of both largecap and midcap stocks in a single fund, stated the press release.
This is clearly evident from the surge in the number of folios, which has increased 126% to 100.78 lakh in July 2024, as compared with 44.55 lakh in July 2019.“Escalating geopolitical risks, worries over heightened valuations and uncertainty as to how the global interest rate cycle pans out in the coming months are some of the factors that may result in market volatility. Large and midcap funds may be be a good investment choice if these funds have exposure to companies which have comparatively strong balance sheets, established businesses and stable earnings growth which can offer the much-needed stability during market volatility and uncertainty,” said Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics.In terms of flows, the net flows into large and midcap funds have increased 276% to Rs 2622.29 crore in July 2024 against Rs 697.13 crore in July 2019.
“Such funds are finding favour as they offer the dual benefit of the stability of the large cap stocks and the growth potential of mid cap stocks. Largecap companies are well established companies with strong balance sheet and good governance, which imparts stability to the entire portfolio during market volatility. Midcap companies meanwhile carry tremendous growth potential as they have the capacity to grow into large cap companies in the coming years,” Kumar said.
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The volatility in domestic equity markets following heightened geopolitical tensions and concerns about an economic slowdown in China and the US notwithstanding, the Indian mutual fund industry continued to witness a robust surge in inflows in July.
Net inflows into the mutual fund industry increased by 130% at Rs 1.89 lakh crore in July 2024. The net inflows were Rs 82,046 crore last year. The net AUM grew by 40% inching closer to the Rs 65 lakh crore mark in July 2024 and stood at Rs 64.97 lakh crore, as against Rs 46.38 lakh crore in July 2023.
On a month-on-month basis, net AUM increased by 6% from Rs 61.16 lakh crore in June 2024.
According to Kumar, “Inflows into equity mutual funds surged by over four times at Rs 37,113 crore in July 2024, as compared with Rs 7626 crore in July 2023. The resilience of the Indian financial market coupled with improved growth prospects of the Indian economy is boosting investor confidence leading to increased participation of retail investors thereby contributing to higher inflows into equity mutual funds.”
Among equity mutual funds, sectoral/thematic funds saw inflows to the tune of Rs 18,386 crore during the month under consideration.
Highlighting the need to be well informed and exercise caution while investing in sectoral/thematic funds, Kumar said, “Such funds come with a bias as they are inclined towards a theme or sector. In case the concerned sector/theme experiences some headwinds, then the entire fund may start to underperform as they have high exposure to a particular sector.”
He said, “This is in stark contrast to a diversified funds as it has exposure to multiple sectors and is well insulated from such sectoral shocks even though not completely immune to it. So before investing in sectoral/thematic funds, an investor should have a good understanding of the sector. It is also important to monitor the sector on a continuous basis and rebalance their portfolios regularly basis market developments.”
