March 2018 numbers may come even lower if the market continues to descend.

As reported by the Economic Times dated March 18, 2018, top 10 mutual fund houses of the country have reported a massive decline of Rs 8,900 crore in their AUM.

Does this fall look worrisome and do you, as an investor, need to take any action with your portfolio?

Let’s find out.

First and foremost, there’s nothing to be scared about the fall in the AUM of top 10 fund houses. It’s a part and parcel of their business.

Mutual Funds reporting an increase in AUM

• Kotak Mahindra Mutual Fund
• Axis Mutual Fund
• Reliance Mutual Fund
• ICICI Prudential Mutual Fund

Mutual Funds reporting a decrease in AUM

• UTI Mutual Fund
• HDFC Mutual Fund
• SBI Mutual Fund
• Birla Sun Life Mutual Fund
• Franklin Templeton Mutual Fund
• DSP Blackrock Mutual Fund

On a Year-on-Year (Y-o-Y) basis, mutual funds have recorded a 25.38% growth in February 2018. As per the data published by the Association of Mutual Funds in India (AMFI) for February 2018, the industry has received the net inflows of Rs 12,092 crore in February.

These numbers are encouraging, especially considering, the income funds and gilt funds together have registered the net outflows of Rs 11,420 crore .

This goes to show that equity-oriented funds investors have become more mature and have been pumping in money through Systematic Investment Plans (SIPs). And, the fall of worth Rs 8,900 crore in the AUM of top 10 mutual funds is largely on account of falling markets. Fresh inflows are still robust.

Robust inflows in equity oriented schemes…

Scheme category	Net Inflow/Outflow (Rs in crore)
Income	(9,799)
Infrastructure debt fund	140
Equity	14,683
Balanced	5,026
Money market	1,223
Gilt	(1,621)
ELSS	1,585
Gold-ETF	(94)
Other ETFs	953
Fund of Funds investing overseas	(4)
Total	12,092

Data as on February 28, 2018
(Source: AMFI)  

What investors should do?

Strategically, given that equity markets are volatile and market valuations seem stretched in some market cap segments, taking the Systematic Investment Plan (SIP) route while investing in equity funds will be sensible to negotiate the market volatility better.

Corporate earnings are expected to show improvement with economic growth picking up and disruptions caused by demonetisation and GST fading.

In fact, already there are encouraging signs from a few companies who have announced their results.

One reason why earnings aren't expected to disappoint is, the bottoming out of the earnings growth to GDP ratio, which shrunk to 3% in 2017 from 7% in 2008.

However, it would serve you better to be cautious of the traps of bull market.

For several years, the market has initially projected 15-20% growth in earnings, but the actual growth has turned out to be very poor.

It’s best to take note of the famous quote “Be fearful when others are greedy and greedy when others are fearful,” by legendary investor, Mr Warren Buffett. 

So, do not get swayed by the forward statements in the earnings. Sadly, the oldest trick in the book of ‘estimating earnings’ played out is that, the near-term estimates are being toned down while the future earning estimates are increased.

Hence, set realistic post-tax return expectations.   

The impact of corporate earnings on your mutual fund portfolio would be hinged on the portfolio characteristics of the schemes you hold in your portfolio.

During such times it is imperative to strategically structure or review your portfolio based on your asset allocation. PersonalFN therefore recommends that you follow a ‘core and satellite approach’ to investing. Here are 6 benefits of ‘core and satellite approach’:

• Facilitates optimal diversification;
• Reduces the risk to your portfolio;
• Enables you to benefit from a variety of investment strategies;
• Aims to create wealth cushioning the downside;
• Offers the potential to outperform the market; and
• Reduces the need for constant churning of your entire portfolio

‘Core and satellite’ investment approach is a time-tested strategic way to structure and/or restructure your investment portfolio.

Your ‘core portfolio’ should consist of large-cap, multi-cap, and value style funds, while the ‘satellite portfolio’ should include funds from the mid-and-small cap category and opportunities style funds.

But what matters the most is the art of astutely structuring the portfolio by assigning weightages to each category of mutual funds and the schemes you select for the portfolio.

Moreover, with changes in the markets’ outlook, the allocation/weightage to each of the schemes, especially in the satellite portfolio, need to change. 

Going gung-ho and buying indiscriminately does not work in the best long-term interest. Selecting the best mutual fund scheme for your portfolio remains the key.

To pick mutual fund schemes for your portfolio, prefer mutual fund schemes that have proven their mettle, so as to have only the consistent ones in your mutual fund portfolio.

Prefer those which follow robust investment processes and systems as against those indulging in momentum playing. Further, have a long-term investment horizon in mind of, at least, five years.

Rule of Thumb: Always consider your financial goals and the risk appetite before investing in mutual funds.

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