Mutual funds are a good investment for anyone looking for diversification in their portfolios. Read this to understand how the MF industry fared in 2022.
As the year 2022 comes to an end, mutual fund (MF) investors have hardly anything to cheer about. It has been a year of low returns, sobering expectations and multiple realizations. It was tough for many mutual fund schemes and categories. Stock specific rallies in large cap and global events-induced volatility in Indian stock market majorly impacted performance of MFs. At the same time, value stocks outperformed growth stocks and accordingly categories like value funds (8 percent) outpaced other equity mutual fund categories in 2022.
The overview
Large cap heavy categories like flexi cap category performed poorly (delivered 2 percent) while mid and small cap oriented categories like multicap (6 percent) delivered better returns, according to Saurav Basu, Head – Wealth Management at Tata Capital.
“In case of sectoral/thematic funds, IT funds were the top loser (-21 percent), while FMCG (22 percent) and Banking & Financial Services (16 percent) outperformed. In debt category, credit risk, short duration and medium duration funds performed well so far. (Performance as on 19th December 2022),” Basu told CNBC-TV18.com.
Debt funds also did no better with repo rates going up by 225 bps and provided modest returns only. The central banks globally realized that excessive liquidity infusion does create inflation and performed a quick pivot by increasing rates and reducing liquidity.
The best performing funds were liquid and overnight funds, however, making people realize that at times safety performs as well.
Here are MF scheme returns in 2022:
(Source: TRUST Mutual Fund)
On the other hand, mutual funds currently have about 6.05 crore (60.5 million) SIP accounts through which investors regularly invest in schemes.
Details of new SIPs registered and discontinued during FY 22-23 are as under : (SIP Count in Lakh)
The way forward
Given the global market uncertainty and outperformance of Indian markets vis-à-vis global markets, Basu of Tata Capital believes that individuals should invest through SIPs/staggered manner.
“Mid and small cap oriented categories appear more attractive than large cap for allocation going ahead and investors can look at multicap category to take exposure to mid and small cap stocks. While, to counter volatility investors can also look at Balanced Advantage Funds which manages equity allocation dynamically,” Basu said.
He thinks that debt funds are also favorable as yields are at attractive levels and markets have already priced in much of the incremental rate action. Investors can look at adding duration (categories such as medium duration and corporate bond funds) and to capture higher yields, investors can look at products like target maturity funds in their debt portfolios and should ensure that their investment horizon is matching with the fund’s duration.
Meanwhile, a proper asset allocation is also essential.
According to Sandeep Bagla, CEO at TRUST Mutual Fund, equities are overvalued and the best of earnings growth is already baked into the market prices.
Higher interest rates and tighter liquidity, both locally and globally, are likely to provide formidable headwinds to equity returns. Bond yields have gone up, providing high accrual yield to investors and possibility of capital gains if inflation starts to go down. So, it may be a difficult year for investors.
“It is advisable to allocate more towards debt funds and create a proper asset allocated portfolio with expectations of moderate return expectations,” Bagla told CNBC-TV18.com.
