'Mutual Funds the secret spice to beat volatility', says A Balasubramanian

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A Balasubramanian, MD and CEO of Aditya Birla Sun Life Mutual Fund 

Key Highlights

  • “Mutual Funds are the best destination of investments as the economy is expected to bounce back and interest rates are likely to stay lower for a considerable period of time.”
  • “Investments through mutual fund model over the long-term horizon can be helpful because it undergoes through different investment cycles.
  • “The diversified portfolio of mutual funds takes away the worry of extreme concentration and offers a mix for long-term investing.”

The benchmark indices continue to shrug off COVID cuts staying above 15,500 levels at Nifty50 and Sensex above 51,800 level mark. After the markets tumbled in April during the peak of the second covid wave, investors are now regaining confidence as the virus subsides.

At a time when the market is moving towards an upside, what should you invest in to build wealth to beat market volatility? A Balasubramanian, Managing Director and Chief Executive Officer of Aditya Birla Sun Life Mutual Fund suggested the best way to build long-term wealth is by investing in Mutual Funds.

He says, “Mutual Funds are the best destination of investments as the economy is expected to bounce back and interest rates are likely to stay lower for a considerable period of time.”

The next bi-monthly monetary policy is expected to announce in two days. The Reserve Bank of India (RBI) had reserved to keep interest rates unchanged in April. The key lending rate, the repo rate was kept at 4 per cent and the reverse repo rate at 3.35 per cent. At a time when markets are vulnerable to swift changes, diversified portfolio of mutual funds provides safe haven of investment opportunity. Balasubramanian says, “The diversified portfolio of mutual funds takes away the worry of extreme concentration and offers a mix for long-term investing.”

According to AMFI reports, Equity mutual funds saw net inflows of Rs 9,115 crore in March 2021. The net inflows in equity schemes witnessed an increase after eight consecutive months.

Balasubramanian says, “A mix of funds focused on multi-cap categories or small and mid-cap categories can be the best way to invest through mutual funds as long as the investor is ready to stay invested for a 5-10-year time horizon.”

Multi cap funds bet on a mix of blue-chip stocks, mid and small-cap stocks and can provide a consistent return over a long-term period if we invest in a diversified manner.

The new norms implemented in 2021 by the Securities and Exchange Board of India (SEBI) revised multi-cap mutual fund scheme to invest 75% minimum in equities from 65%. To avoid fresh allocation troubles raised by the industry, SEBI also introduced flexi cap funds that allows 65% of equity allocation. Multi-cap and small-cap mutual fund schemes can be multi-baggers for investors due to 25% allocation across the range of large-cap, mid-cap, and small caps.    

Though small-cap mutual funds risk stakes are high, they can yield high rewards in a long-term time span as well. The small-cap funds universe encompasses companies from 251st as per market capitalization. Over the last one year, the average return of small-cap funds has exceeded 100%. However, one must be cautious about the amount of investment in these portfolios because of easy dip when the market swings down.

Investments through mutual fund models offer investors a detailed and focused list of stocks from a huge variety depending on few factors like corporate governance, growth of the company, shareholding value, balance sheets etc. Patience bears a golden fruit and investing to get rich is a patience game-plan. Balasubramanian suggests, “Investments through mutual fund model over the long-term horizon can be helpful because it undergoes through different investment cycles.”  

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