Mutual Fund in 2021: Equity outperforms Fixed Deposit, gold loses sheen while debt schemes least favoured by millennials

We can tag "2021" as a Bull run without any second thought, since it is a "once in a blue moon" and it's difficult to comment on when it would repeat, but one thing I am sure about is that 2022 will not repeat another 2021, at least in terms of equity investments, Akshat Garg, Manager Research at INVESTICA tells Zee Business.

To understand the significance of numbers, it's necessary to view the performance of all the categories in isolation with other asset classes, mainly divided into equity, debt, hybrid & Gold

See Zee Business Live TV Streaming Below:

Zee Business spoke to Garg, who decodes how MF industry performed in 2021:

• Equity-MF

In this fancy world of investing, "equity" as an asset class has always been dearest to the retail investors because of a single reason "high returns" and no wonder 2021 was indeed one of the best years for them.

The table below contains the average category return for equity mutual fund categories:

Source: Morningstar:

The data itself speaks the story for 2021, as no bull run ever happened without "small-caps & mid-caps" performing stellar.

 A minimum requirement of "25%" investments in mid-caps and small-cap each favoured the Multi-cap investors hence it out-performed its sister category "Flexi-caps" by a big shore.

 Pandemic has turned out to be a blessing in a disguise for IT sector, as covid has made us realize our abundance dependence on technology, it’s quite far from its peak in terms of growth and also continuous innovation might not let this category outcast

 With BJP in center, Infrastructure & energy is indeed an outperformer in 2021, as government has been rolling out various initiatives & policies like "Housing for all", "Smart cities mission" etc to strengthen the theme for the ultimate aim of 5 Trillion $ economy

 • Debt

 In my opinion, "Debt" is the least preferred category, especially among those millennials who have just seen the rosy side of stock markets in the last couple of years

 The below table contains the average category return for Debt mutual fund categories

Source: Morningstar

It's difficult to digest the above returns, I can totally empathize with the debt fund investors.

 It seems after the Franklin fiasco, AMCs cumulatively have taken a conservative stance, as at present the category average of the investment in AAA (Highest rated) papers is more than 99% where the minimum requirement is of 80% only in the corporate bond funds.

 To leave the comfort zone of "AAA" seems the only possible decode to clock more than 6% in the current economic situation where RBI is rigid with its accommodative stance and business are clouded with the uncertainty infused with the new covid-19 variants 

 We could witness a sharp recovery in the Indian economy after its collapse in the first wave of covid where a complete lockdown was imposed, with the improving health of Indian business and their ability to service their lower-rated papers, “Credit Risk” category was a stand-alone winner in the debt wodge for the calendar year of 2021.

 “Medium Duration” & “Banking & PSU” also gave decent performance relative to other debt categories

 • Hybrid & Gold

 D-street is reverberating with the debates on valuation, as many market veterans having contrary opinions and hence "Hybrid" funds can come to the rescue of those investors who can't take the bet with conviction

 The below table contains the average category return for hybrid mutual fund categories

Due to the higher equity component, the "Aggressive-Hybrids" category became the show-stopper in the hybrid asset class.

 BAF came second in the race, and due to the minimum requirement of 75% assets in the debt instruments "Conservative-Hybrids" performed the worst.

 Negative returns in the gold are a bummer for those orthodox investors who were leveraging a disproportionate chunk of their portfolio thinking gold as the supreme asset class, as rationally it should be the part of investor's portfolio just for the diversification tilt i.e. 7-10% of the portfolio.

 (Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)