Short Term View of Equity and Debt Mutual Funds.

Short Term View of Equity and Debt Mutual Funds.

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Mutual funds are often seen as risk free investments. You can simply put in some money each month and it’ll grow each year.

This couldn’t be further from the truth.

Mutual funds aren’t so easy to understand. The line “Mutual fund investments are subject to market risks. Read all scheme related documents carefully.” Changes the entire view. You cant get 15% annual returns every year by randomly selecting a mutual fund.

In this blog I’ll try to give you a macro picture of the short term view of equity and debt funds in India in July 2020. There are a couple of things you need to know before you read this.

  1. This blog will give you a macro picture. I wont talk about specific funds and the underlying companies they’ve invested in. it’s about the big picture, the majority and we won’t consider outliers.
  2. This view is based on money flow analysis.

The thing you need to understand is that market rises when there’s demand. When money is actively flowing in, the market rises. But when money is flowing out, the market falls. It’s the most basic form of money flow analysis.

But only short term view of mutual funds wont give you the entire picture of the market. You’ll have to look deeper into the FII (Smart Money) activity in Futures & Options and Cash segment. You’ll have to find out if new positions are being created, existing positions are being closed or is hedging or index management going on.

The Big Picture.

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I’ve downloaded the monthly report from the official website and let’s first analyse the income and debt schemes.

I’ve created a couple of extra columns, ROC i.e. rate of change in Folios and Net Inflow. You can easily add new columns by using the VLOOKUP command in MS Excel.

There were around 5400 less number of Folios in July compared to June in Overnight Funds. But the inflow was positive, so it’s not alarming. But if you see the other funds, there has been a positive inflow and positive number of folios.

This is a very good sign. Liquid funds have seen around 58,000 new folios and 58,000 crores worth of positive inflow. Low and short duration funds have also seen a huge positive inflow. It means that the big players aka smart money is active in short term debt/liquid funds.

And smart money almost never loses money in the market. This is an indication that investing in liquid funds and other funds for short period of time could be a good idea.

Let’s look at Equity Funds.

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Things look ugly in Equity oriented schemes. Only large and multi cap funds (and other funds at the bottom) have seen a positive number of folios compared to June 2020. But the overall money inflow is negative.

This means that not only people (smart money) are not investing in these funds, they’re rather taking money out.

When the ROC in Folios and ROC in Inflow both are negative, its alarming.

The change in Large cap funds is not astronomically high compared to the money that is being put in every month, but the money inflow, rather outflow is the highest in Mid and Small cap funds along with a significant drop in number of folios.

This is a sign that Mid and Small cap funds will probably perform really bad in the short run (6-12 months) while large cap funds will perform bad, but not as bad in the short run.

Focused and sectorial funds have a positive number of folios which means that some specific sectors will thrive (or survive) while most sectors will take a dump. But still the money is being taken out from all the categories.


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This alone isn’t enough to conclude the entire macro view, but to keep things short and simple, I conclude that short term view of debt and liquid funds is Positive while the short term view of Mid and Small Cap funds is Negative.

This analysis was purely done from Money Flow’s point of view based on Data. Unless something significant change is seen, things don’t look very good for Equity funds in the Short Term.

-Vikrant C.


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