Winning a marathon race is not a child’s play. The mental attitude most long distance runners swear by is patience. If you run too fast, exhaustion meets you sooner; run too slow, and you might finish the race last.
For professional fund managers, managing equity oriented mutual fund schemes is just like running a marathon race. They always have to strike a perfect balance between risk and reward. If they are inclined to be conservative, schemes under their management may underperform. On the other hand, if their approach is overly aggressive, they might risk losing the investors’ hard-earned money.
Tricky market conditions, like those that presently prevail, makes the fund manager’s job even more challenging.
As per the data published by the Association of Mutual Funds in India (AMFI) on April 30, 2017, the total AUM (Assets Under Management) under open-ended equity schemes was Rs 4.81 lakh crore. Interestingly, top 20 open-ended equity schemes (AUM-wise) collectively had a corpus of Rs 2.04 lakh crore — 42% of the total AUM of open-ended-equity schemes.
Now if investors keep pouring money in only a few schemes based on their past performance, it could prove to be disappointing in the future. Here’s why…
As you may be aware, Indian markets are hovering at an all-time high, and these are one of the most expensive emerging markets across the world. But, inflows of new investments in mutual funds are still incredibly high. And as a result, it has become increasingly difficult for fund managers to determine appropriate investment opportunities to deploy money to. Moreover, if they manage mutual fund schemes with a massive AUM base, finding stocks at a reasonable price and value becomes way too difficult for them, especially, in the mid and small cap domain, which has been driving the markets higher for some time now.
What are the options available to fund managers when investment opportunities dry up?
It seems there’s no consensus among fund managers on the issue of inadequate investment opportunities, at present. Some of them are sitting on as much as 14% cash, while others hold about a per cent of cash.
Commenting on the cash positions maintained at the industry level, Mr Harsha Upadhyaya, CIO, Kotak Mutual Fund said, “Fund industry as a whole is sitting on nearly 6 percent cash and any correction in the market would be looked as a buying opportunity."
Mr Rajeev Thakkar, Chief Investment Officer at Parag Parikh Mutual Fund, briefed the media about the strategy of his fund house, He said, “Whenever we have cash, we do not force ourselves to invest if opportunities are not present. The work to identify opportunities continues at all points in time.”
Mr Mrinal Singh, Deputy CIO – Equities at ICICI Prudential Mutual Fund is of the view that, "The only time cash levels could materially impact an investor is when the fund manager maintains high levels of cash through an entire market cycle."
Interestingly, schemes holding less cash seem to be more diversified than those maintaining higher cash amounts. Schemes focused on mid and small cap sectors appear to be holding less concentrated portfolios.
And what about sector bets?
Fund managers seem to be betting on sectors that are expected to benefit from a cyclical recovery in Indian economy. Therefore, Banking and Automobiles remain some of their favourite sectors. Besides, they are also betting on the chemical sector and consumer durables. Infrastructure remains their favourite theme as well. Whereas owing to the on-going turbulence, Information Technology and Pharmaceutical companies have fallen out of favour with fund managers.
At the moment fund managers are playing safe. Needless to say, their past performance doesn’t provide you with any clue about what the future might look like. If the Indian economy advances as expected and listed companies deliver on corporate earnings, market valuations may seem justified in due course.
However, maintaining caution would be prudent at this juncture. SIP (Systematic Investment Plan) remains the most appropriate route to deal with heightened volatility without speculating on the market direction.
If you are clueless about which funds will generate wealth for you in the long term, there’s some good news for you.
PersonalFN offers you a great opportunity if you’re looking for “high investment gains at relatively moderate risk”. Based on the ‘core and satellite’ approach to investing, here’s PersonalFN’s latest exclusive report: The Strategic Funds Portfolio For 2025. In this report, PersonalFN provides a readymade portfolio of its top recommended equity mutual funds schemes for 2025 that have the ability to generate attractive returns for you in the long run. So, we strongly recommend that you opt for The Strategic Funds Portfolio For 2025.
Add Comments