The Indian mutual fund industry has seen significant transformations in recent years, and as we move into 2024, there are several key mutual fund trends that investors need to be aware of. These trends, including the increasing popularity of equity mutual funds, the continued rise of Systematic Investment Plans (SIPs), and shifts in sectoral preferences, offer new opportunities and challenges. In this blog, we’ll explore these mutual funds trends and provide insights on how to optimise your investment strategy for the coming year.
Equity mutual funds have long been a favourite among Indian investors, and 2024 is shaping up to be no different. In 2023, equity mutual funds delivered impressive returns, outperforming major benchmarks. With an average return of 15.5% for equity schemes compared to the Nifty 50’s 6.3% growth, these funds have attracted a substantial number of new investors.
What’s driving this trend? The robust performance of sectors like IT, finance, and consumer goods, along with strong corporate earnings, has fueled growth. Additionally, mid and small-cap equity mutual funds have particularly stood out, delivering higher returns than large-cap funds. This trend is expected to continue in 2024 as India’s economic recovery accelerates, and more investors look to equity mutual funds to capitalise on market opportunities.
Another significant mutual fund trend to watch in 2024 is the growing popularity of Systematic Investment Plans (SIPs). SIPs allow investors to invest a fixed amount regularly, making them an excellent option for those looking to build wealth gradually and reduce the risk of market volatility.
In 2023, SIP contributions reached an all-time high of ₹17,073 crore in October. This upward trajectory is expected to continue into 2024, driven by increasing financial literacy and a greater awareness of the benefits of long-term investing. SIPs are particularly popular among young, risk-tolerant investors who prefer to take advantage of rupee-cost averaging. By investing small amounts consistently, they can mitigate the impact of short-term market fluctuations while benefiting from the power of compounding.
For those looking to maximise their investment potential in 2024, incorporating SIPs into their mutual funds portfolio is a smart move. This strategy provides a disciplined approach to investing, helping investors stay focused on their long-term goals despite market volatility.
Another key mutual fund trend to watch in 2024 is the growing interest in sectoral and thematic funds. These mutual funds focus on specific sectors or industries, such as healthcare, technology, or financial services, and are designed to capitalise on growth within these areas.
Sectoral funds, especially those targeting industries like IT, pharmaceuticals, and renewable energy, have gained traction in 2023. The technology sector, in particular, has seen significant interest due to the digital transformation accelerated by the pandemic. As global demand for technology services continues to rise, IT-focused mutual funds are poised for further growth in 2024.
Similarly, healthcare mutual funds have benefited from the increasing demand for pharmaceutical products and services, making them another attractive option for investors. With the continued focus on healthcare innovation and infrastructure, this sector is expected to remain resilient and offer good returns in the upcoming year.
One of the biggest shifts in the mutual fund landscape is the rise of passive funds and Exchange-Traded Funds (ETFs). In 2023, the ETF market share grew from 16.1% to 16.8%, and this trend is set to continue in 2024. Investors are increasingly attracted to passive funds because of their lower expense ratios, ease of trading, and transparency.
ETFs and index funds offer exposure to a broad market index like the Nifty 50 or Sensex, making them a low-cost way to diversify investments. For investors looking to reduce risk, ETFs provide a stable option by tracking the performance of an entire market index rather than relying on individual stocks. The growth of ETFs reflects the broader trend of investors seeking diversified portfolios with lower fees and greater flexibility.
In 2023, there was a notable shift in investor preferences toward equity funds and away from debt-oriented mutual funds. While debt mutual funds provide stable returns and are ideal for risk-averse investors, equity funds have seen higher inflows due to the potential for higher returns in a growing economy.
This shift is likely to continue in 2024 as retail investors become more confident in equity markets and look for growth opportunities. However, debt funds are still a valuable component of a diversified portfolio, especially in a high-interest-rate environment. Investors with lower risk tolerance may find government bond and dynamic bond funds appealing, as they provide stable income without exposing them to the volatility of equity markets.
One of the most significant mutual fund trends in 2024 is the rise of retail investors. The number of retail investors has grown rapidly in recent years, driven by greater financial awareness and easier access to investment platforms. This has led to an increase in mutual fund SIPs and higher overall participation in the mutual fund industry.
Retail investors are also showing a preference for holding their investments longer than non-retail investors, which indicates a shift towards a more disciplined and long-term investment approach. As retail participation continues to grow, we can expect to see even greater inflows into mutual funds in the coming year.
As we look ahead to 2024, it’s clear that mutual funds will continue to play a vital role in shaping investment strategies. The growth of equity mutual funds, the rise of SIPs, and the increasing popularity of sectoral and passive funds all point to exciting
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