Balanced Funds are losing their balance

After witnessing a drop in its total assets under management (AUMs) in the last two months of FY18, Indian mutual fund industry saw a good beginning for the new financial year. For the month of April, the industry AUM reached a new high of Rs. 23.25 lakh crore. It recorded a growth of 9 per cent on a monthly basis.

Nonetheless, the primary driver for this rise in the AUM was the large inflow into liquid funds. The introduction of long-term capital gain tax and dividend distribution tax (DDT) in the Union Budget 2018 continued to take a toll of the inflows into equity-oriented mutual funds. The latest data by AMFI showed that the total inflow to equity schemes was the lowest since May last year. The balanced funds, which were the darling of investors in the year 2017 also witnessed their inflows going down by half in the month of April from what was recorded in January 2018. The popularity of the balanced funds can be gauged by the fact that the average size of the balanced funds was more than the average size of large-cap funds.

Monthly Net Inflow of Funds In Balanced Mutual Funds

One of the factors that led to such a rise of balanced funds is the way they were sold to the investors. Most of the time it was sold as a low-risk investment with a regular tax-free dividend. Therefore, it became quite attractive, especially for retirees to park their money and get monthly tax-free dividends as income.

Nevertheless, the imposition of DDT has reduced the inflows into the hands of investors and hence we are witnessing such a huge fall in net inflows in balanced funds. Now only the serious investors understanding the product well and if it fits into their asset allocation strategy will invest.