Striking A Balance

Thanks to falling interest rates, even conservative investors, who swore by fixed deposits, are turning to mutual funds.

- Nachiket Kelkar

India’s equity markets have hit record levels, thanks to inflows from foreign institutional investors and the growing interest among domestic retail investors, who have been heavily investing in mutual funds.

The percentage of Indians investing in equity and mutual funds has traditionally been low, but that has been changing over the past two years. As interest rates have fallen, even conservative investors, who typically put their money in fixed deposits, are turning to mutual funds. Also, balanced funds as a category has been getting a lot of attention, with assets under the management of such funds almost doubling.

Over the financial year that ended on March 2017, balanced funds saw net inflows of ₹36,610 crore, up more than 85 per cent from ₹19,743 crore in the previous fiscal, according to data from Association of Mutual Funds of India. Total inflows in equity mutual funds declined 11 per cent to ₹60,270 crore, from ₹67,611 crore a year ago.

In April, balanced funds saw further inflows of ₹7,136 crore, taking the total assets under management of such funds to ₹93,530 crore. Balanced funds are seeing an increased interest among investors because of certain inherent advantages that these funds offer.

Typically, one should invest across various asset classes. Even in mutual funds, investments should be spread across equity and fixed income funds. A balanced fund invests in equity as well as fixed income instruments like government securities and corporate bonds. This obviates the necessity to buy two separate funds—one equity and the other debt.