Introduction

Mutual funds represent the corpus of household investments pooled together resulting in gains and losses being shared equally. They enable an investor to take a back seat by not getting their hands dirty in the open market, also limiting their exposure to risk.

Since three fourths of the investment are in equities, mutual funds tanked in the first quarter of 2020. Despite the fall, they continued to attract investors due to the high disposable income available coupled with lower interest rates. (Mutual Funds added 72 lakh folios in 2020, 4% more than in 2019).

Current position of Mutual Funds in India

The Mutual Fund market is promising given an upward graph in investments and YoY double digit growth, but since the market being volatile, there is no one position or stand that can be accredited to them. This is because the goals of every investor are different varying on period of investment, quantum and their capacity for risk.

Although they do not stand for a large part of Indian investments, they have offered relatively higher returns in the long term. The magic lies in compounding wherein an asset is left undisturbed and is allowed to grow at the market rates whether it is recession or boom. Since last year’s fall, Mutual funds have guarded their position and some of them have outperformed as well.To put it in numbers, India’s Mutual Fund assets have grown at an average of 12.5% annually, outperforming the growth in the developed regions worldwide.

Following the trends of India’s top performing funds

Fund	Major Sectors	3Y Growth (in %)	5Y Growth (in %)
Edelweiss Greater China- Offshore Fund	Technology & Consumer based – retail	27.31	29.96
Aditya Birla Sun Life Digital	Technology	26.86	22.61
Canara Robeco Equity Hybrid Fund	Banking and FinServ	12.17	15.39

Source: Economic Times

The above-mentioned funds are the country’s top performing funds currently. Taking them as a benchmark, it is safe to say after research that:

• Major funds in the Indian Market have a huge chunk of their assets allocated in technology and banking products.
• On an average, more than half of such investments are made in the developing Asian markets.

The factors stated above, indirectly hint towards a promising future for the Indian Tech industry as both Technology and Banking products will further promote funding and credit support to newly started ventures.

Have you heard about ESG Funds?

ESG stands for ‘Environmental, Social and Governance’. ESG funds are funds working towards sustainability and human development. This means funds having a high sustainability score have passed stringent tests over how sustainable the company is regarding its ESG criteria, making them a catalyst towards change.

“ESG theme is becoming not just a luxury but indeed a necessity in the present-day scenario”- Jinesh Gopani, Head – Equity, Axis AMC.

Indeed, investors being fortunate enough to take part in the trading market may choose to buy funds ESG funds as Companies that effectively manage the ESG factors through their corporate actions can provide attractive long-term investment opportunities and will face significantly lower disruption risks to their business model.

ESG Funds have performed on par with the regular equity funds, being invested heavily in healthcare, technology and energy. The top performing ESG funds in India are:

• Aditya Birla Sun Life ESG fund
• Axis ESG fund

ICICI Prudential ESG fund

Analysis

Mutual Fund SIPs

In the book Psychology of Money by Morgan Housel, Housel remarks that ‘you do not need a high income to save or invest,’ which is typically made true by SIPs in Mutual funds where you can start investing by putting aside a small proportion of your income which starts to compound.

Simplifying investment

Mutual Funds require another categorization so that they are simplified for the retail investor, which will help them to make informed decisions while parking their excess funds.

Can we predict the future?

If we talk about deriving a short-term roadmap ahead for Mutual funds, we can surely see increased investments by households as expenses have reduced. Long term roadmaps would be of less use and are not worth expending our energy on as we have seen, a single outlier event is enough to shake the economic equilibrium.

By: Shaurya Rathi

Shaurya Rathi is a second year commerce student at Mithibai College, Mumbai. He’s inclined towards increasing financial literacy among all age groups and providing financial solutions for the same. In addition to that, he is also a budding CFA aspirant.