In May this year, assets under management (AUM) of the mutual fund industry rose to a record high of R10.11 lakh crore on the back of strong inflows into equity funds and a surge in the stock markets. This was also the third consecutive monthly increase in AUM of country’s 45 fund houses. Net inflows into equity mutual funds crossed the R2,000-crore-mark for the first time in three years. However, redemptions, too, increased in May as many investors booked profit because of the surge in the equity markets.
The industry’s AUM rose 7% to R10.11 lakh crore in May 2014 from Rs 9.45 lakh crore in the previous month, according to the monthly numbers released by the Association of Mutual Funds in India (Amfi).
While equity mutual funds added around 0.39 million folios in April 2014, they lost around 0.35 million folios in the next month. The total number of equity mutual fund folios stood at 29.22 million as on May 31, 2014. The equity mutual fund AUM shot up 13% to R2.17 lakh crore in May from R1.92 lakh crore in the previous month. In May, six equity schemes were launched. The benchmark Sensex has gained over 20% since the beginning of this year and foreign institutional investors have pumped around $9 billion into Indian equities.
The Nifty is currently trading at 14.7x on a 12-month forward earnings basis against a historical average of 14.2x. Historically, during the recovery phase, valuations tend to move ahead of fundamentals with renewed optimism and investor confidence. Analysts say this will have a spiralling effect and will eventually help recover demand and earnings, and provide valuation support for price stability.
However, retail investors should not time the market and, instead, invest through systematic investment plan (SIP) of mutual funds.
One can invest a fixed sum regularly in the mutual fund scheme as it will average out the cost of acquisition by purchasing more units when prices are low and lesser units when prices are high. This will better your returns over the long term by averaging out market volatility. When the markets are down, it is common for retail investors to opt out of SIPs. Instead, one should invest a fixed sum regularly and gain on the averaging opportunities during a market crash.
Tax savings an equity investment
Investments in equity linked savings scheme (ELSS) are eligible for deduction under Section 80C of the Income-Tax