Mutual fund companies are now focusing on high-value and low-volatility stocks. New fund offers (NFOs) are prioritizing investments in large and stable stocks.
Mutual Funds: Despite recent market fluctuations, the pace of new fund launches by mutual fund companies has not been affected. However, a shift in their investment strategy is evident. Companies are now emphasizing funds that invest in stable and high-quality stocks.
Increasing Number of New Schemes
From the beginning of February, mutual fund companies have sought approval from the Securities and Exchange Board of India (SEBI) to launch 44 new schemes. These include 13 debt funds and 27 equity funds. Most new equity funds are focused on large-cap, quality, and low-volatility stocks. These strategies, less popular among investors in recent years, are now regaining prominence.
Decreasing Influence of Thematic and Sectoral Funds
While thematic and sectoral funds received more attention in recent months, mutual fund companies are now concentrating on funds capable of withstanding market volatility.
Index-Based Investment Strategy
Many of the newly launched funds include passive funds tracking various indices. These include the following prominent indices:
Nifty 200 Quality 30
Nifty Top 10/15/20 Equal Weight
Nifty 500 Low Volatility 50
Nifty 100 Low Volatility 30
BSE Low Volatility Index
Some schemes have already been launched, while others are expected to launch in the coming weeks.
Growing Influence of Low Volatility and Equal-Weight Strategies
Currently, another popular strategy is 'low volatility,' aimed at mitigating the impact of market fluctuations. This involves stocks with minimal price changes, selected based on the standard deviation of their daily returns.
Furthermore, new fund offers (NFOs) are employing an equal-weight strategy, where the fund's money is evenly distributed across all selected stocks.
Valuation and Investor Confidence
ICICI Prudential Mutual Fund stated in its report that valuations have softened slightly in recent months, although they remain high. According to the report, "We prefer large-cap stocks over mid and small-cap stocks due to better valuations and the potential return of foreign portfolio investors (FPIs), which could lead to better performance."
Record New Fund Launches in 2024
The NFO segment witnessed a significant surge in 2024. For the first time, over 200 funds were launched last year. While debt fund launches declined, over 150 equity funds (both active and index) were launched.
The significant inflow into equity funds and the record number of new investment accounts in 2024 were primarily driven by new fund launches. This year saw the launch of several first-of-their-kind funds covering capital markets, tourism, real estate, electric vehicles, new-age automotive, and other sectoral indices.
