After two years of spectacular return by equity mutual funds, the year 2022 did not start on a good note. How do you see it panning out for the rest of the year?
It is important to remember that returns from stock markets are lumpy. There could be long periods of low to no returns and there could be a short time where one gets superlative returns.
In short, stock market returns are not linear. It would be advisable for investors to tone down their return expectation after a couple of very good years. The era of free money and low interest rates seems to be over. Inflation and oil prices are trending upwards. On top of this, there are geopolitical risks and a lot of uncertainty. All this will keep the markets volatile and return expectations should be toned down to low doubledigit returns in an optimistic scenario.
The latest SIP numbers are very heartening to note. Do you see any correlation between MF returns and these flows? Will it taper with a fall in equity returns?
SIP numbers and flows to MFs have been extremely strong for the last 6-7 years. Post demonetisation and with the financial aspect of savings, a lot of funds have flowed through the MF channel. The overall experience for investors has been good so far. As we have seen in earlier cycles, there are definitely some correlations of strong flows when overall returns are good. Chasing past returns and fear of missing out (FOMO) are human behavioural traits which are hard to change. We could see some slowdown in flows if equity returns are sub-optimal for a significant period. But the overall trajectory of SIP numbers is surely going up.
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