Equity mutual funds in 2014 saw a staggering inflow of Rs 49,000 crores, particularly in the second half after the Narendra Modi government assumed charge. Investors wanted to ride the boom in stocks through mutual funds and they really did.

But, now if you see the one year returns its difficult to find funds with more than 14 per cent returns. In fact, the three month returns of mutual funds is now very much in the negative zone. Two things have happened in the last two months. One is that the Sensex has dipped from 30,000 points in early March to the current levels of 26,800 points. Secondly, high base effect has come into play. The result is that the returns of mutual fund schemes is now slowing and slowing very fast.

Should You Keep Buying Equity Mutual Funds?

Markets have rallied sharply in the last one year. Earnings in India are just not catching-up and its difficult to see how equity mutual funds could give more returns than bank deposits. The RBI also has given hints that it might pause in terms of interest rate cuts. The monsoons may not be good enough to push growth and if that happens inflation could also rear its head again.

On the other hand the US Federal Reserve could cut interest rates going ahead, which means we could see some exodus of foreign funds. All in all the picture does not see as bright as it was one year ago. Sensex stocks are expensive at almost 19 times current earnings.

So, it would be difficult for mutual funds to give 20 and 30 per cent returns as seen in one year returns in early March. It's best to temper your expectation. If you have already invested it would be a good idea to withdraw some money should the net asset values of equity mutual funds see improvement.

You could re-enter the same when the markets fall and you can buy the units at a lower NAV. Do not expect any extraordinary returns as in the past.

There is a bright chance that inflows into mutual funds would taper giving that markets could remain lacklustre for a prolonged period.

GoodReturns.in