FM Announcement To Improve MF Performance

The government has finally responded to the slowing economy and falling equity markets. In a very measured and focused approach, Finance Minister Nirmala Sitharaman addressed the concerns of the various sectors of the economy with a slew of measures such as withdrawal of tax surcharge levied on the long term and short term capital gains of FPIs and sops to different sectors. These measures will go a long way in reviving the sentiment of the investors and the equity markets. This was clearly visible in Monday’s trading (August 26, 2019) when major equity indices gained by more than two per cent.

For mutual funds, there was very little that was announced. Other than allowing mutual fund houses to use Aadhar to complete the KYC process, there was nothing explicit. Nevertheless, what will really help the MFs is the announcement made to revive the sagging economy. The lacklustre equity market has impacted the performance of the equity-dedicated MFs. Almost all the categories of equity-dedicated funds are offering negative returns in the last one year. The best return was provided by IT funds, that too was a negative 0.54%.

I believe it is the right time to start allocating more of your funds towards equity-dedicated funds. If you are taking SIP route of investment, you can step up your SIP amount. However, if you want to invest in a lump sum, you can put 10% of your amount now. The choice of the fund will depend upon your risk profile and investment horizon. So, if you are risk-averse and have an investment horizon of five years, you can go for large-cap dedicated funds. But if you are willing to take the risk and have longer investment horizon, you can go for mid-cap or small-cap funds in a staggered manner as the risk-reward ratio is tilted towards reward from hereon.