A deep dive into 5 recent trends in mutual funds

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The mutual fund industry’s assets under management (AUM) continued their upward trajectory and increased 1.6% in October to 37.3 trillion compared with 36.7 trillion in September. Further, the industry’s AUM has surged by 20% since the start of the calendar year led by equities.  In its recent report, ICICI Securities has highlighted certain trends in the mutual fund industry. Let’s take a look at them. 

Equity funds: According to the brokerage, small-cap funds staged a comeback after a brief period of underperformance.  “While we remain constructive on mid-cap and small-cap funds, multi-cap and flexi-cap funds are better placed for most investors in the current environment where mid-cap and small-cap funds have already outperformed significantly,” said Sachin Jain, research analyst, ICICI Securities.  The report said that sectors such as infrastructure, public sector undertakings, which lagged behind in the early part of the rally, have started to regain traction. 

New fund offers: According to the report, new fund offers (NFOs) in equity-oriented funds raised more than 30,000 crore during May-September. Moreover, inflows into equity funds in the past few months have been dominated by NFOs. 

Exchange-traded funds (ETFs): As per ICICI Securities, AUM for ETFs has grown from 5,400 crore in December 2014 to more than 3.5 trillion currently. While growth in ETFs is driven by institutional flows led by EPFO in Nifty 50 and BSE Sensex ETF along with CPSE ETFs, inflows from individual investors have also started gaining traction. “This trend of allocation towards ETF is increasing and is likely to gain further traction. The ETF market is expected to grow on the back of continued thrust from government and rising acceptance of products such as an investment vehicle by the retail segment,” said Jain. 

Bond market: ICICI Securities believes that the bond market continues to be in a wait and watch mode with few domestic MF managers raising cash levels in their actively managed debt funds.  The yield of AAA-rated corporates has fallen significantly. “With the gross YTM of corporate bond funds around 5.5%, the attractiveness reduces significantly,” it added. 

Hybrid funds: The hybrid funds category is dominated by aggressive hybrid funds (erstwhile balanced funds) and balanced advantage or dynamic asset allocation funds.

The balanced advantage funds category has been witnessing consistent inflows in the past six months as many investors prefer to invest in a dynamically managed equity funds. 

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