Time to Increase Allocation to Equity MF

The mutual fund industry in India is once again in the limelight as the Securities Exchange Board of India (SEBI) has issued a fresh circular with the aim of developing passive funds. In a fresh initiative, SEBI has allowed fund houses to launch three new categories of Debt Funds viz. ETFs or index funds focusing on corporate bond markets, government securities markets and a combination of both i.e. corporate bonds and government securities. What is interesting is that SEBI has given an option to ETFs and index funds to replicate the underlying index. This step can increase liquidity in the fixed income markets. 

Also, SEBI will now allow the fund houses to either actively manage ELSS or launch a new passive ELSS. It is not clear how many asset management companies (AMCs) will be excited over this development as most fund houses already have an active ELSS scheme. The impetus of SEBI on pushing passive funds is clear as per the new circular, which also mentions that fund houses can spend 1 bps of their passive fund AUM to spread awareness on passive funds through a focused campaign. This will be beneficial for those investors who lack knowledge about the way passive funds work.

With growth stocks getting hammered and showing no signs of recovery the demand for value stocks is on the rise. In our cover story we have discussed at length why one must not ignore value funds. Indeed, value funds should be part of your core mutual fund portfolio. In one of our special stories we have discussed at length the ‘short duration’ funds. These can be a great alternative to fixed deposits. There is always a temptation to sell mutual fund investments when the market is falling. We have explained with the help of empirical evidence why it is not a good idea to sell your investments in falling markets. So keep investing even if the market is in a downturn.

Yogesh Supekar
Executive Editor