As we navigate through 2024, the landscape of mutual funds in India is evolving, with several notable trends shaping the future of equity funds. For investors seeking to understand what equity funds are and how they can leverage these developments, this blog explores what is equity fund and the top trends in the mutual fund market. From increased retail participation to the rising popularity of passive investments, these trends are setting the stage for a dynamic year ahead.
What is an Equity Fund?
An equity fund, also known as a stock fund, is a mutual fund that primarily invests in stocks or equities. The main objective of equity funds is to achieve capital growth by investing in shares of companies with the potential for appreciation. Equity funds can be categorised into various types, such as small-cap, mid-cap, and large-cap funds, based on the market capitalisation of the companies they invest in. These funds offer investors the opportunity to participate in the stock market and benefit from the growth potential of companies.
Equity Fund Trends: 2024
Increased Retail Investor Participation
One of the most significant trends in 2024 is the surge in retail investor participation in the mutual fund industry. Historically dominated by large institutional investors, the market is now seeing a substantial influx of small investors. This shift is evidenced by the total assets under management (AUM) growing over fivefold in the last decade, reaching Rs. 57 trillion in April 2024.
Unlike non-retail investors, retail investors prefer longer holding periods and often favour non-equity funds and shorter investment horizons. This trend suggests that mutual funds, particularly equity funds, are becoming the preferred choice for individuals aiming to meet long-term financial milestones.
Rising Popularity of Index Funds and ETFs
Another key trend is the growing popularity of passive investment avenues such as exchange-traded funds (ETFs) and index funds. The AUM of ETFs in the Indian market has skyrocketed from Rs. 351 crore in 2014 to Rs. 6.27 lakh crore in 2024.
For retail investors, passive funds like ETFs and index funds offer several advantages, including low simplicity, investment costs, relatively stable portfolios, and professional fund management. As investors increasingly recognise these benefits, mutual fund houses are responding with a slew of new index fund launches.
Increasing SIP Contributions
Systematic Investment Plans (SIPs) continue to dominate as the preferred mode of investment for retail mutual fund investors. Data from the AMFI (Association of Mutual Funds in India) reveals a steady increase in SIP contributions throughout 2024, from over Rs. 18,000 crore in January to over Rs. 20,000 crore in April.
The growing popularity of SIPs can be attributed to their flexibility and convenience and the widespread availability of digital trading tools. The rise of financial literacy and a preference for digital investment platforms are crucial in this trend.
Strong Preference for Equity Funds
Modern retail investors in India are showing a strong preference for equity funds and are willing to tolerate higher risks in exchange for better market-linked returns. This trend is evident from the significant inflows into equity funds despite simultaneous outflows from debt funds.
In March 2024, while debt funds saw outflows exceeding Rs. 2 lakh crore, equity funds maintained robust inflows, averaging over Rs. 20,000 crore per month. This shift towards equity funds highlights a growing appetite for higher-risk, higher-reward investments among retail investors.
Shift from Small-Cap to Mid-Cap and Large-Cap Funds
Within the equity fund segment, there is a noticeable shift in investor preference from small-cap funds to mid-cap and large-cap funds in 2024. In March, mid-cap investments dipped significantly and small-cap funds recorded outflows of Rs. 94.17 crore, while large and mid-cap categories saw inflows of Rs. 3,215.50 crore.
Several factors contribute to this shift, including regulatory changes, valuation concerns, and general market sentiment. Regulatory stress tests for small-cap funds, in particular, have prompted investors to reconsider their positions.
Final Word
The future of equity funds in 2024 looks promising, with several positive trends shaping the market. By staying informed and adapting to these changes, investors can make the most of the opportunities presented by equity funds and achieve their financial aspirations. Whether you are a seasoned investor or just starting, understanding these trends can help you navigate the mutual fund landscape effectively.
