Thematic and hybrid funds garnered higher inflows in Sept, financial advisors explain why

The market is volatile owing to sudden and unexpected macro factors stemming from so many wars. For a dedicated long-term investor, this situation presents an opportunity to increase their holdings or initiate new investments. The age-old principle of “buy low, sell high” continues to be a tried-and-true strategy in the stock market. Continued market upheavals in the past have not deterred long-term investors from putting their money in the market. This is evident from the recent data shared by the recently released Association of Mutual Funds in India (AMFI) recent September data which highlighted inflows into the market worth ₹16,000 crores through regular systematic investment plan (SIP) investments.

Statistics also underscore more investors taking an active interest in thematic or sectoral funds owing to their competitive returns. Considering how investing in these funds involves a lot of risk, numbers suggest the growing risk-averse nature of investors amidst growing optimism regarding the performance of the Indian stock market.

A discussion with personal financial experts revealed possible reasons for growing interest in sectoral funds.

Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates said, “As per my understanding, investors are cautious and selective because we are trading at the top of the valuation channel. Therefore, investors have shown interest in the hybrid- Balanced advantage/multi-asset funds and sector-specific funds like – IT and Pharma.”

Viral Bhatt, Founder, Money Mantra added, “The Indian stock market has been performing well in recent months, with the Sensex and Nifty reaching new record highs in September. This positive market sentiment has boosted investor confidence and led to increased inflows into mutual funds. It is important to note that thematic/sectoral and hybrid funds are more volatile than diversified equity funds. This is because they invest in a concentrated portfolio of stocks or sectors. Therefore, investors should carefully consider their risk appetite and investment goals before investing in these funds.”

“Investors are rotating their funds into sectors and themes that are expected to perform well in the coming months. For example, sectors such as IT, banking, and financial services are expected to benefit from the strong economic growth in India. Similarly, themes such as electric vehicles, renewable energy, and consumption are expected to outperform the broader market in the coming years,” added Bhatt.

Gaurav Goel, Founder-Director, Fynocrat Technologies explained, “Hybrid funds have seen increased net inflows on a month-on-month basis. Diversification and risk management are pivotal considerations for investors venturing into mutual funds to maintain a balanced portfolio. The rise in investments in hybrid funds may be ascribed to investors’ renewed focus on capital preservation. This trend can also be linked to the robust bull run in the equity markets, prompting investors to adopt a balanced approach to their investments.”

There’s no denying that India’s trajectory points to long-term structural growth, with the potential to reach a 10 trillion-dollar economy in the foreseeable future. For individual investors, mutual funds stand as a pivotal asset class to participate in India’s growth narrative and potentially garner favourable returns over the extended term.

Traditionally, retail investors diversify their investments across various fund categories, including equity funds, balanced funds, or debt funds, aligning with their risk tolerance and investment horizon. However, recent trends in mutual fund investments reveal a notable shift. There is a discernible inflow of capital into thematic/sectoral funds and hybrid funds, influenced by several contributing factors. The overall positive market outlook, despite prevailing negative sentiments, contributes positively to India’s stock market growth narrative.