This year, while the epidemic wildfire continues to claim lives, we’ve witnessed the debt debacle and equity volatility combined with the global economic growth crisis and trade wars; a Pandora’s Box.

In the recent AMFI data released, the Average Asset Under Management for the monthly shows a slight uptick, but on a quarterly basis it has dropped, as seen below.

Graph 1: Average Asset Under Management (AAUM)

Monthly AAUM on the left and Quarterly AAUM on the right
*The estimated values.
(Source: AMFI; PersonalFN Research)

The equity and debt fund inflows declined as compared to the gold ETF inflows for the month and hence there was rise in a number of folios as seen below

Graph 2: Rise in number of folios

(Source: AMFI; PersonalFN Research)

But quarter-on-quarter, net inflows shrank across most categories of funds. As you can see in Table 1.

Table 1: Shrinkage in Inflows

Inflows/Outflows (Rs in Crore) June 2019 Q1 September 2019 Q2 December 2019 Q3 March 2020 Q4 June 2020* Q1
Open ended equity funds 17,680 23,874 11,837 30,703 14,331
Open ended debt funds 19,691 -5,061 94,141 -1,13,549 1,07,338
Hybrid funds 514 14,367 -1,442 -37,206 13,213
Gold ETFs -52 172 3 1,491 2,040

(Source: AMFI; PersonalFN Research)

Despite the S&P BSE Sensex moving up from its 23-March-2020-low of 25981.24 posting an absolute return of 34.4% as of June 30, 2020. Quarter inflows suffered immense outflow pressure. Equity markets witnessed plenty of profit bookings and debt outflows stemmed from the Franklin Templeton Mutual Fund issue.

The AAUM of the top 10 fund houses dropped over the previous quarter as shown in Table 2 below. Franklin Mutual Fund’s AAUM shrank a lot.

Table 2: Quarterly dip in AUM of Top fund houses

Mutual Fund Name Q1 April – June 2019 Q2 July – September 2019 Q3 October – December 2019 Q4 January – March 2020 Q1 April – June 2020
SBI Mutual Fund 30753386.0 32066283.7 35263192.9 37353660.8 36436298.4
HDFC Mutual Fund 36253843.4 37659756.5 38251703.2 36978279.6 35618341.7
ICICI Prudential Mutual Fund 33728675.1 34806836.0 36150657.4 35074348.9 32629118.1
Aditya Birla Sun Life Mutual Fund 25396525.6 25382849.9 24992599.3 24752168.0 21459196.0
Nippon India Mutual Fund 22257572.5 20264949.3 20437079.0 20488371.7 18006069.9
Kotak Mahindra Mutual Fund 16120905.9 16839931.6 17696124.8 18608847.3 16732559.3
Axis Mutual Fund 10222114.7 10552617.2 12286723.0 13840162.0 13431574.2
UTI Mutual Fund 15786586.4 15422901.2 15711908.8 15151252.9 13363108.8
IDFC Mutual Fund 8227911.8 9415053.6 10462970.8 10391179.4 10176977.5
Franklin Templeton Mutual Fund 12496738.0 12402501.5 12647525.0 11632279.8 7980838.8
Grand Total 255059189 256894704 267771912 270367579 246276993

(Values are Rs in Lakhs)
(Source: AMFI; PersonalFN Research)

However, over 6-month period, from January 2020 to June 2020, the Equity inflows have been good. Average SIP inflows remained above Rs 8000 crore mark for the first half of the year, but monthly SIP dropped to Rs 7927.11 crore from May count of Rs 8.123 crore. Much of it is due to the market correction.

Graph 3: SIP inflows fell

(Source: AMFI; PersonalFN Research)

During this time, one observation is that a new breed of investors has sprung up-“Robin Hood traders” These are young investors, including millennials, who are using technical analysis to bet big on risky stocks and ignore core fundamentals of investments.

For most of us, 2020 can’t be over soon enough!

The slowdown, a disappointing budget and the biggest of all, the coronavirus epidemic… the year seems to have misery at every corner.

The economic devastation due to coronavirus is unmatched and it has created an environment of uncertainty where caution is the word. But Robinhood traders consider this an ideal environment to generate exponential returns fast by investing aggressively when everyone else seems fearful.

This explains the surge in equities over the quarter.

But in my view, one should invest with a holistic approach, which means strategically and not following any market trends. Remember, investing is an individualistic exercise; there isn’t a ‘one size fits all’ investment solution.

I recommend follow the `Core & Satellite’ approach to invest in mutual funds. It is a time-tested strategy adopted by some of the most successful investors.

This strategy helps you concentrate on the stable schemes with a long-term view and at the same time take advantage of short-term opportunities.

The ‘Core’ holding should comprise around 65-70% of your equity mutual fund portfolio and consist of large-cap fundmulti-cap fund, and a value style fund.

Whereas, the ‘Satellite’ holdings of the portfolio can be around 30-35% comprising of a mid-cap fund, a large & mid-cap fund, and an aggressive hybrid fund.

The six advantages of ‘Core & Satellite’ Approach to investing are as under:

  1. Provides optimal diversification;
  2. Lowers the need for constant portfolio churning
  3. Reduces the risk involved in your portfolio;
  4. Helps you benefit from a variety of investment strategies;
  5. Allows you to create wealth cushioning the downside; and
  6. Holds the potential to outperform the market

Given the uncertainty looming and the Indian equity market continuing to remain very volatile, prefer Systematic Investment Plan (SIP) route while you build the portfolio, the equity mutual fund portfolio the ‘Core and Satellite’ way.

Besides align your investments with your risk appetite, broader investment objective, financial goals, and time horizon to accomplish the envisioned financial goals.

Happy Investing!

This article first appeared on PersonalFN here

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