Have equity and balanced funds lost their relevance?

Equity and balanced funds were very dear to the investors for the last couple of years. These funds have cheered many investors and have seen large inflow in the last year. But for the last few months, these funds have been witnessing a huge decline in their inflows.

On analysing the latest AMFI data, we find that for the month of June 2018, the inflows in equity and balanced funds were Rs. 8,794 crore and Rs. 1,482 crore, respectively, whereas in the preceding month, that is, in May, these funds registered inflows of Rs. 10,724 crore and Rs. 3500 crore respectively. This shows a decline in inflows of 18% in equity funds and 58% in balanced funds.

This slowdown can be attributed to the correction in the small-cap and mid-cap stocks. Many investors who were attracted by the exceptional returns generated by these stocks had invested in the small-cap and mid-cap schemes. But these schemed have now turned disappointing with the dramatic collapse in these stocks.

Moreover, the weak macroeconomic cues, rising crude oil prices as well as rising interest rates have directed investors back towards equity funds. In the latest AMFI data, we can see that there are huge inflows in liquid/money market funds. This clearly suggests that to tackle current market volatility and gain from the rising interest rates, investors are looking at these funds as an option.

But investors should always remember that the small-cap and mid-cap have fallen due to stretched valuations and this fall can be a good opportunity to average their investments. These funds have the potential to perform, going ahead. Tough times make things much stronger so in these downtrends investor should stay invested to gain good returns.