Mutual Fund Investment Mantras To Invest In 2022

Mutual fund investors have enjoyed blockbuster returns in 2021.

- Sudipta Mitu

Year-to-date (as of December 20, 2021) large-cap funds have yielded a category average return of 21.7 per cent, mid-cap funds have given 38.8 per cent, while small-cap funds have yielded 55.6 per cent. However, with the equity markets turning volatile in recent weeks, and more volatility expected in the near future, investors should tighten their belts for a tumultuous ride in 2022.

Monetary policies reversing The recent convulsions in the equity market have resulted from global central banks altering their monetary policy stance. The Federal Reserve, the United States’ central bank, in its latest meeting, announced a faster tapering programme: It will scale back bond-buying at double its earlier pace (by $30 billion each month). The bond-buying programme will now end in March instead of mid-year. It appears that Fed officials expect three rate hikes of 25 basis points each in 2022.

The Bank of England recently became the first major central bank to hike its benchmark interest rate from 0.1 to 0.25 per cent.

Persistently high inflation across the globe has forced the hand of leading central banks and led them to alter the easy monetary stance they had adopted to promote economic growth and employment in the wake of the Covid-19 crisis.

A tighter monetary policy could lead to higher bond yields in the US and other developed nations. This could in turn lead to foreign institutional investors (FIIs) withdrawing money from developed markets. They have already pulled out Rs. 31,812 crore since the start of October (till December 17). India has witnessed strong outflows as its market is more expensive compared to most emerging market peers.