Mutual Funds Year-end Special 2023: 5 things that impacted how you invested in 2023

Investors continued to pour money into MFs through systematic investment plans (SIPs), taking the industry’s assets under management to Rs 49 trillion. The year started with SIP inflows of around Rs 13,500 crore, and by the end of November investors were pumping in Rs 17,073 crore a month. Just three years back, SIP inflows were a fraction of this — Rs 7,302 crore as of November 2020.

Besides increasing awareness about MFs, a rocking equity market also helps amp up flows. While largecap indices performed well, mid and smallcap stocks were huge gainers. The Nifty 50 index is up 17 percent so far this year, whereas the Nifty Midcap index is up 40 percent, and Nifty Smallcap 100 index is up 48 percent. Only two sectors did better than small and midcaps — the Nifty Realty index and central public sector companies or CPSEs, as measured by Nifty CPSE index.

What to expect in 2024? “Concern around unexpected events impacting financial stability and job security is making people more conscious about investments. We expect this to result  in a growth in SIPs in 2024,” said Ajit Menon, Chief Executive Officer (CEO), PGIM India Mutual Fund.

Equity and debt inflows

Rising equity markets led to higher inflows in equity funds. Small and midcap funds got the maximum net inflows,  Rs 37,178 crore and Rs 21,520 crore, respectively. Sector and thematic funds (healthcare, consumer, defence, information technology, etc) were also in vogue — 29 such funds were launched in 2023, which mopped up Rs 11,220 crore.

As for the number of investors, smallcap fund folios went up 58 percent, multi-asset allocation fund folios went up by 68 percent, and index fund folios went up by 86 percent.

“India's post-pandemic economic rebound has been widespread, encompassing various sectors such as real estate, capital goods, agriculture, hotels, hospitals, and automobiles, among others. Notably, in sectors like agriculture, building materials, and hospitals, the investment opportunity often lies in mid and smallcap firms, many of which are industry leaders. Recognising this, numerous investors have entered these segments,” said Vinit Sambre, Head, Equities, DSP Mutual Fund.

What to expect in 2024? 

Sambre says that despite the current historic highs in valuations for small and midcaps, which signals a need for consolidation, “long-term investors with an 8-10 year horizon may still find value in allocating to these segments, based on thei.r risk profile.”

Deadline for nomination

The Securities and Exchange Board of India (SEBI), the capital markets regulator, has given an extended deadline of December 31, 2023, for unitholders to complete their nomination. Earlier, nomination was optional, but now investors must either nominate someone or explicitly opt out.

Manthan Shah, Managing Partner at Wish Worth Wealth, a large Surat-based mutual fund distribution firm, recalls that the original deadline for this was August 31, 2022, but it kept getting pushed. Shah says that it took a lot of time for the MF industry to comply with this condition as nomination has to be done at the folio level. “All unitholders must sign off, whether to add a nominee or opt out. This has taken a lot of time, but I think the industry is very close to  concluding this now,” explained Shah. If you fail to comply, (either nominate or explicitly and in writing opt-out of nomination)  your withdrawals would be frozen till you comply. Existing SIPs and investments would be allowed.

What to expect in 2024? 

Do not expect the deadline to be pushed any more, and either  complete your nominations, or opt out. Also, write a will if you haven’t written one already.

Debt fund taxation

Effective April 1, 2023, capital gains on redemption of debt funds bought on or after April 1, 2023, will be taxed at your income tax slab rate.  In other words, long-term capital gains (LTCG) tax benefits and indexation benefits were abolished for debt funds (those which invest less than 35 percent in equities of domestic listed firms). This was applicable not only to debt funds, but also gold exchange-traded funds (ETFs), international fund of funds, conservative hybrid funds, dynamic asset allocation funds, and multi-asset allocation funds. Unitholders of these funds will be taxed for short and long-term capital gains per their slab rates. However, the Finance Act, 2023, offered a little consolation: your gains on investments made until March 31, 2023, will be grandfathered.

Funds which invest between 35-65 percent in equities (balanced hybrid funds) will levy STCG tax at marginal tax (slab) rates, but will allow 20 percent LTCG tax with indexation benefits if you sell the units after three years.

New fund houses

Three new fund houses entered the Indian MF industry in 2023. Bajaj Finserv Asset Management launched its first scheme in June. Samir Arora’s Helios Mutual Fund launched its first scheme in October. Around the same time, Zerodha Fund House launched its first two schemes. While Helios and Bajaj Finserv will launch actively-managed funds, Zerodha Fund house has taken the passive approach.

What to expect in 2024?

More fund houses will be launched next year. Kenneth Andrade’s Old Bridge Capital Management got the final approval from SEBI earlier this year. In November, portfolio management firm Unifi Capital Pvt Ltd  received in-principle approval from SEBI to launch its mutual fund business. It’ll take a few more months for Unifi to get SEBI’s final approval, post which it would launch its first MF scheme.

All eyes are also on the much-awaited launch of Jio-BlackRock Asset Management Co. BlackRock Asset Managers is the world’s largest fund house. Earlier, it was present in India as DSP BlackRock, but both entities (India’s DSP and BlackRock) parted ways in 2018. BlackRock has now re-entered India, partnering with Jio Financial Services (JFS).