MFDs and RIAs currently do not favour lumpsum investment in equity-oriented funds and are advising their clients to look at hybrid funds like balanced advantage funds.
Of the six leading MFDs and RIAs we contacted, four of them said they won't recommend lump sum investment in equity funds due to high valuations. Three of them said they would recommend hybrid funds instead.
In the hybrid space, balanced advantage funds (BAF) have emerged as investors favourite in the past few months as equity valuations soared to record highs. In this financial year alone, the average AUM of BAFs has grown by over 50% from Rs.1.07 lakh crore in March 2021 to Rs.1.6 lakh crore on October 2021, shows AMFI data. There has also been a flurry of NFOs in the space.
A poll done by Cafemutual in August also showed that most MFDs are not in favour of lump sum investment in equity funds. Only 10% of the respondents in the survey said they would ask their clients to invest a big amount in equity funds in one go.
In case of SIPs, MFDs and RIAs are open to suggesting equity funds. Presently, most of them favour flexicap and large & midcap funds for medium term to long term investments.
MFDs and RIAs we spoke to are Vinod Jain, founder of Jain Privy Client, Amit Bivalkar, MD & CEO of Sapient Wealth, Viral Bhatt, founder of Money Mantra, Harshavardhan Bhusari, founder of Fin Pals, Babu Krishnamoorthy of Finsherpa Investment Services and Shifali Satsangee of Funds Vedaa.
What’s their choice in debt space?
A few respondents said they do not mind suggesting credit risk funds if the client wants to invest for medium to long term duration.
However, majority of them want their clients to avoid investment in longer duration debt funds as of now and instead invest in hybrid funds.
They reason that the present interest rate scenario is not suitable for investment in long duration funds. They see hybrid funds as a better option as most schemes have pruned equity allocation and are currently heavy on debt. As managers of hybrid schemes have the flexibility to shift between equity and debt, hybrid scheme managers are better placed to manage interest rate risk.
A few MFDs and RIAs said they are recommending corporate bond fund and banking & PSU fund for the medium term and gilt funds for the long term.
