Top Mutual Funds: In 2024, the mutual fund industry witnessed the emergence of several categories that garnered attention for various reasons, both positive and negative. These categories attracted significant investor interest, leading to substantial inflows into the schemes. However, not all categories made headlines for positive reasons; some faced challenges and posed inconveniences to mutual fund investors.
Top Mutual Funds Categories
While the focus was not solely on returns or performance, the unique characteristics and circumstances surrounding these mutual fund categories sparked discussions and intrigue within the industry. From innovative strategies to unforeseen hurdles, these categories stood out for their individuality and impact on the investing landscape. As investors navigated through the diverse offerings, these categories added layers of complexity and depth to the mutual fund universe, offering both opportunities and challenges for market participants.
Defence Funds
- Defence funds have seen a slight decrease in the last three months, with HDFC Defence Fund showing an 8.46% loss in the last six months.
- Valuation concerns and global economic uncertainties have impacted the performance of the sector.
- HDFC Defence Fund discontinued lumpsum and SIP investments in July due to fears of overvaluation in the portfolio.
- The upcoming budget in February is expected to provide a positive trigger for the sector, with increased government allocation towards defense projects and infrastructure.
- The outlook for the sector remains optimistic, driven by modernization efforts and a focus on indigenization.
- Investors should remain mindful of market dynamics and valuation levels when considering investments in the defense sector.
Midcap and Smallcap Funds
- Mid cap and small cap funds have seen modest froth in valuations compared to large cap segments, driven by high earnings expectations for the second half of FY25.
- Mutual fund houses have been asked by the market regulator to frame policies to protect investors from potential froth in mid and small cap segments.
- Stress test results are now being declared by mutual fund houses, including the time required to liquidate portions of the portfolio.
- Corporate earnings in H1FY25 slowed down due to the high base effect, but an acceleration is expected in the second half.
- Corporate earnings for mid and small caps are projected to grow at 20% and 22% respectively for full year FY25, with a positive outlook for mid and small caps in CY2025.
- Investors are recommended to diversify across market caps (large, mid, and small) at an allocation of 55:20:25 to reduce concentration risk and get exposure across different segments.
PSU Funds
- PSU funds have been the top performing category in the current calendar year, driven by strong earnings growth, attractive valuations, and increased government focus on capital expenditure and infrastructure development.
- Market sentiments that influenced the performance of these funds in 2024 are expected to continue impacting their performance amid evolving economic conditions and policy changes.
- The outlook for the PSU sector is highly optimistic, supported by strategic government policies and sustained public investment in critical areas such as defense, railways, and energy.
- Despite minor concerns over short-term spending trends, the visibility on long-term capital projects positions PSUs as integral to India’s economic and infrastructure advancement.
- Investors are advised to stagger their investments through SIPs or STPs to capitalize on market opportunities while mitigating risks.
- A balanced and disciplined approach is recommended to navigate potential valuation corrections and sector-specific challenges effectively in the PSU sector.
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International Funds
- China-based international funds have seen significant returns in recent months, driven by a broader market rally in Chinese markets and the announcement of a new stimulus package.
- Hang Seng index, after offering negative returns for three consecutive years, delivered a 27.84% return in 2024.
- FIIs temporarily shifted focus from emerging markets to undervalued markets like China & America, contributing to the performance of international funds.
- Expert recommendation advises against investing in global markets other than India, as Indian markets are expected to grow at a healthy rate of 12 to 13% for the next 5 years.
- Domestic equity mutual funds are expected to deliver additional 2-3% alpha over Nifty 50, resulting in 13-15% returns in the coming years.
- For global equity exposure in the portfolio, it is suggested to consider up to 5% of the overall portfolio.
(Please note that the recommendations, suggestions, views, and opinions provided by the experts are solely their own and do not necessarily reflect the views of the organization. We advise you to consider these recommendations as informational and consult with a professional in the respective field before taking any actions.)
