The RoRy Financial Newsletter | Feb 2024

Topics include Interim Budget, Investing in NFOs

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Market overview of last month?

The Nifty 50 index touched the month's high at 22,124 and the month's low at 21,137 (last month was 21,801 and 20,183 respectively). This was once again a lifetime high for the index and a continuation of the bull run in the Indian markets. The reasons are the softening stance of the Federal Reserve (USA Central Bank), a strong outlook for the Indian economy and the resilience of the domestic market.

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The Interim Budget - 2024

The Interim Budget did not introduce many changes, as a comprehensive budget is expected after the upcoming elections. So this budget aims to sustain operations until the full-fledged budget is presented. For a detailed analysis, check out this informative article by Finshots. A quick summary - there were no alterations in personal taxes. The government plans to maintain spending on capital assets to stimulate economic growth. There will be re- emphasis on affordable housing. Noteworthy initiatives include rooftop solarization, benefiting one crore households with up to 300 units of free electricity per month. The market response to the budget has been mildly positive.

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Is investing in an NFO advantageous?

Over the past three years, investors have reaped significant rewards in Indian stock markets ?amid a robust bull run. Simultaneously, mutual funds have been proactive in capitalizing on these favourable market conditions. The year 2023 witnessed a notable surge in new fund offerings (NFOs), with a total of 212 new funds launched. Among them, approximately 100 were in the equity mutual fund category, with index funds constituting 50%. The pertinent question arises: Is it wise to invest in NFOs? Usually, there are many established funds within the same category. They have track records spanning three to five years or even longer. The rationale for favouring existing funds with a proven track record is straightforward. Opting for a new fund makes sense only if it introduces either a different investment approach, contributing to portfolio diversification or filling a specific gap in the market. Investors are often lured by being (mis) sold that NFOs are priced lower, often at ?10 per unit, appearing more affordable compared to the market. However, it's crucial to recognize that investors are essentially purchasing a specific number of units for a designated investment amount. The paramount metric is the rate of return on the investment. For instance, investing ?1,000 in a new fund at ?10 per unit would yield 100 units, while the same ?1,000 in an existing fund at ?100 per unit would result in 10 units. However, if the older fund delivers a higher rate of return, it outperforms the new fund. Ultimately, the focus remains on the return on investment, making the choice of a fund with a proven track record a prudent decision over an NFO that lacks an established performance history despite its promising appearance.

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What can equity mutual fund investors do?

Our stance is the same as last month - The Nifty is currently at lifetime highs and does not give much scope for investors who want to invest lumpsum amounts. However, the period surrounding elections can provide a window of opportunities where such investors can enter. SIP investors can continue their investments.

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What can debt mutual fund investors do?

Our stance is the same as last month - Inflation continues to be an issue for RBI as it has not come close to the 4% target. As per the RBI’s projections, this is likely to ?happen towards the second half of this year.?So an immediate interest rate cut is not anticipated. Numerous suggestions by experts advise considering debt funds with long-duration papers like corporate bond funds, dynamic bond funds, and gilt funds. However only savvy investors should consider these funds as they carry credit risk and duration risk. For retail investors, opting for very short-term to short-term funds with a high degree of quality papers is a good choice. By choosing funds with quality underlying assets and appropriate maturity profiles, investors can navigate market fluctuations more comfortably while meeting their financial objectives.

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Our latest video series

Introducing "Freestyling On Finance," our latest video series exploring the softer aspects of investing that may not directly impact investors like stock market movements or economic shifts. This series delves into the thoughts and doubts that investors commonly experience, which can significantly influence their investing behaviour. Feel free to watch and share your thoughts by dropping a comment.

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That’s all, folks. Have a great month ahead!

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Disclaimer - Mutual Fund investments are subject to market risks, read all scheme related documents carefully.