Mutual Funds: A Pillar of Strength in the Indian Equity Market

In the face of potential volatility due to fluctuations in inflation, the Indian equity market stands poised for stability. The consistent inflow of funds from mutual funds acts as a cushion against potential losses, thereby providing vital support and reinforcing the market's inherent resilience.

The Indian equity market has emerged to be a global top performer. Since the onset of 2020, the domestic equity market, represented by BSE Sensex, has consistently outshined its global counterparts by a significant margin. With a remarkable 46 per cent return, it has surpassed even the S&P 500's commendable 37 per cent return, which comes closest to the Indian equity indices' achievements. [EasyDNNnews:PaidContentStart]

This resilience in the Indian equity market can be attributed, in part, to the steadfast support of domestic institutional investors (DIIs), including mutual funds. While Foreign Portfolio Investors (FPIs) sold Indian equity shares worth Rs 1.4 lakh crore in FY22 and around Rs 40,000 crore in FY23, mutual funds maintained their bullish stance on Indian equities. They invested Rs 1.82 lakh crore in 2022-23, driven by a strong interest from retail investors and market corrections that led to reasonable valuations. This was followed by a similar investment of Rs 1.81 lakh crore by mutual funds in the preceding fiscal year FY22, recovering from a pullout of Rs 1.2 lakh crore in 2020-21, as reported by the Securities and Exchange Board of India (SEBI). Notably, FPIs invested Rs 2.74 lakh crore in FY21. 

As you can observe, the data reveals that mutual funds have adeptly managed to balance the scale, absorbing significant FPI selling from the Indian market. This mirrors the growing influence and maturity of domestic investors, particularly mutual funds. 

Rising SIP Inflows:
A Driving Force A significant factor contributing to this influence is the substantial inflow through Systematic Investment Plans (SIPs). In July 2023, SIP inflows surpassed Rs 15,243 crore, marking the first instance of monthly flows exceeding the Rs 15,000 crore threshold. 

A remarkable 56 per cent of individual investors held their equity investments for over 12 months in Q4FY23, mirroring the previous quarter. The number of SIP accounts increased to 6.65 crore in June 2023 from 6.53 crore in May 2023. The SIP Asset Under Management (AUM) stood at Rs 7.94 crore in June 2023, compared to Rs 7.53 crore in May 2023. The total number of folios reached 14.9 crore including 34 lakh new folios at the quarter's end, reflecting sequential growth of 2.3 per cent and an annual growth rate of 10.7 per cent. 

Looking forward, despite potential volatility due to inflation fluctuations, the equity market is poised for stability. The steady inflows from mutual funds are expected to cushion losses, providing vital support and bolstering market resilience. 

Methodology
This section discusses the process we used to pick the award winners in each category, the best equity fund manager, and the best AMC in equity, debt and hybrid. 

Equity Mutual Funds — We have awarded mutual funds from the below mentioned categories:
■ Large-Cap
■ Large and Mid-Cap
■ Mid-cap
■ Small-Cap
■ Flexi-cap
■ Equity Linked Saving Scheme (ELSS) 

We have ranked the funds based on their performance regarding two major parameters:

1) Returns — The weightage given to this parameter is 70 per cent. Here we measured the funds’ long-term, medium-term and short-term rolling returns and gave equal weightage to them. 

■ Long-Term Returns — For measuring long-term returns, we calculated five-year rolling returns over 10 years. Then we calculated percentile rank for each rolling period. Finally, we calculated the median of all the percentile ranks.
■ Medium-Term Returns — For measuring medium-term returns, we calculated three-year rolling returns over 10 years. Then we calculated percentile rank for each rolling period. Finally, we calculated the median of all the percentile ranks.
■ Short-Term Returns — For measuring short-term returns, we calculated one-year rolling return over three years. Then we calculated the percentile rank for each rolling period. Finally, we calculated the median of all the percentile ranks. 

2) Risk — The weightage given to this parameter is 30 per cent. Here we measured the funds’ maximum drawdown, beta and downside deviation. For gauging this, we rolled each risk factor for every fund over three years for 10 years and then calculated its median.

■ Maximum Drawdown — The weightage given to this parameter is 40 per cent.
■ Standard Deviation — The weightage given to this parameter is 30 per cent.
■ Expected Shortfall —The weightage given to this parameter is 30 per cent. 

We then combined the final returns and the risk score to get the final ranking funds in each category. 

Fund Manager — Here we have ranked the equity fund managers on various AUM weighted return and risk parameters. Furthermore, we gave equal weights to all the parameters.

■ Returns — Here we measured the performance of all the equity fund managers based on AUM weighted one-year, three-year and five-year trailing returns.
■ Risk — Here we gauged how each equity fund manager performed in terms of risk-adjusted return parameters. To understand this, we calculated the AUM weighted Sharpe and Sortino ratios. 

Fund House — We came up with the best fund house in three major categories i.e. equity, debt and hybrid. Various risk and return parameters were calculated to come up with a winner in each category. We calculated three-month, six-month and one-year AUM weighted trailing returns and asset weighted standard deviation was used as the risk parameter. 

Click here to download list of Mutual Funds awards 2023 

Note: All the calculations are as of July 2023.

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