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2024: A Banner Year for Mutual Funds

Equity markets experienced a significant upswing in 2024, marking one of the strongest performances in recent years. This positive momentum had a ripple effect on mutual funds, making it a standout year for this investment avenue. Retail investors demonstrated heightened enthusiasm, as reflected in the substantial inflow of investments and the remarkable growth in Assets Under Management (AUM). The introduction of innovative schemes further energized the sector, solidifying mutual funds as a favored choice for individual investors seeking diverse financial instruments.

Sectoral and Thematic Funds Dominate the Launchpad

The year 2024 was characterized by the emergence of sectoral and thematic funds as the predominant choice for New Fund Offerings (NFOs). These funds, tailored to specific sectors or thematic strategies, resonated with investors due to their focused approach and alignment with market trends. Examples include funds targeting sectors such as manufacturing, technology, or themes like ESG (Environmental, Social, and Governance).

Thematic funds allowed investors to capitalize on growth narratives within select industries or macroeconomic themes, while sectoral funds offered the opportunity to ride industry-specific cycles. With over 90% of new collections focused on thematic and Smart Beta funds (including ETFs and index funds), this trend underscored a shift toward targeted and innovative investment strategies.

Overall, thematic funds, ETFs, and index funds contributed to an impressive 188 out of 239 NFOs launched during the year. Established AMCs leveraged their credibility and expertise to roll out these funds, capitalizing on their ease of approval and appeal to investors. By offering differentiated and innovative products, thematic funds allowed AMCs to address market demands and regulatory requirements effectively.

Multi-Asset Funds Gain Traction

In a year marked by market volatility, multi-asset funds emerged as a robust investment choice. These funds provide a diversified portfolio that includes gold, international equities, domestic equities, and fixed income, making them an attractive option for risk-averse investors seeking balanced returns.

The unique ability of multi-asset funds to hedge against market downturns while offering exposure to multiple asset classes resonated strongly with investors. Both new and existing multi-asset funds experienced steady inflows, highlighting their growing acceptance as a viable diversification strategy in unpredictable market conditions.

Thematic Funds: A Key Driver of Growth

Thematic funds led the charge in 2024, capturing investor attention with their compelling narratives and potential for high returns. Manufacturing funds were especially notable, attracting over ₹7,000 crores in April, the highest AUM mobilized for a thematic fund during an NFO collection.

New Players Drive Growth in Diversified Equity

The diversified equity category saw renewed vigor, thanks to new players entering the market with innovative fund offerings. This category, encompassing multi-cap and flexi-cap funds, appealed to investors looking for exposure to a wide array of equities without being constrained by market-cap restrictions.

While established AMCs focused on thematic funds, ETFs, and index funds to fill gaps in their offerings, new fund houses took a bolder approach by introducing diversified equity baskets. This trend not only broadened the range of investment options but also fostered healthy competition within the industry, ultimately benefiting investors with enhanced product diversity and innovation.

Outlook for 2025

The mutual fund industry is likely to face a recalibration in 2025 after the strong gains of recent years. While extraordinary returns may not sustain, the focus will shift to ensuring stability, maintaining liquidity, and achieving reasonable returns in line with market trends. Investors must adapt to a more balanced approach, safeguarding capital while managing expectations. This calls for strategies that align with changing market dynamics and ensure a steady performance even in uncertain times.

Hybrid and multi-asset funds are expected to lead the way, offering the flexibility to navigate diverse asset classes and create well-diversified portfolios. These funds help mitigate risks and enable investors to remain committed for the long term without chasing individual themes. Additionally, trends such as thematic funds targeting green energy and digital transformation, the growth of ETFs and Smart Beta strategies, and diversified options like multi-cap funds will shape the industry's future. A forward-looking, strategic approach emphasizing diversification and alignment with macroeconomic themes will be crucial for investors aiming to capitalize on emerging opportunities in the year ahead

The information in this report is for general informational purposes only and does not constitute investment advice. Investments in securities markets are subject to market risks. Past performance is not indicative of future results. Investors should evaluate strategies independently and consult financial advisors if needed. For the full disclaimer, visit www.germinateinvestor.com/disclaimer