Should you invest in mutual funds or buy AMC shares?

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For the benefit of small investors, capital markets regulator SEBI’s chief Madhabi Puri Buch is focusing on the safety of small investors. She wants to increase the participation of retail investors.

For this she has taken various decisions like the settlement cycle of secondary market, mutual fund expenses, distribution cost, disclosures in derivatives trading etc.

Sebi has been very strict on frauds against shareholders, and the recovery of expenses incurred by mutual funds from investors. In this situation, should one invest in shares of mutual fund companies, meaning AMC shares or not?

On June 28th, there was considerable excitement in the shares of mutual fund companies. SEBI’s board meeting took place in which several important decisions were taken.

During this meeting, a decision was also expected on the expenses recovered from investors by mutual fund companies. The Total Expense Ratio (TER) was also likely to be addressed.

However, SEBI has postponed the decision on mutual funds’ TER. The regulator has stated that a second consultation paper on TER will be issued. It is hoped that the mutual fund industry will be satisfied with this consultation paper. It was believed that TER would be linked to fund performances and fund houses with poor performance will only be able to collect base charges.

In light of this, analysts believed that there could be a reduction of 20-30 percent in annual profits of AMCs. <GFX 1 in> With this decision, there was a relief rally in the shares of all mutual fund companies. Over the past 6 months, all these shares have provided positive returns of up to 40 percent.

This despite the dact that in budget 2023-24, those mutual funds not investing over 35% of the corpus in equity were categorized under the Short Term Capital Gains (STCG).

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, says, that in the entire realm of financial services, AMCs are a small yet unique vertical from an investment perspective.

After the changes in the budget, investments in debt funds have decreased. However, the interest rate scenario has also changed as better returns have started coming from fixed income as well especially with an increased focus on dynamic debt funds.

Due to consistent investments by retail investors and strong market performance, most AMC companies have shown good performance in the first quarter of FY24. Except for Shriram AMC, profits for all other companies have increased up to 2.5 times year on year.

According to Vijayakumar, approximately 15,000 crore rupees of investment is coming into equity mutual funds every month. In July, the mutual fund industry’s Assets Under Management (AUM) reached a record level of 46 lakh crore rupees.

As per AMFI, in the last 10 years, this figure has increased from 7.61 lakh crore to more than 6 times that amount. Benefiting from the rapid pace of the stock market, strong investments in small and mid-cap shares have positively impacted the entire AMC sector. But what are the valuations of AMC shares, and should one consider investing in these shares at the current levels?

According to Vijayakumar, considering valuations, the market is currently expensive. In terms of FY24, the Nifty is trading at a PE multiple of more than 19 times. This situation applies to some AMC shares as well. From a long-term perspective, only HDFC AMC’s shares are attractive. If there is any correction in these companies then you can invest in Nippon Life AMC shares.

In conclusion from the perspective of investing in the NBFC sector, AMC shares are good options.

After the recent boom, it might be a better strategy to wait a bit in order to capitalize on the increasing investments through SIPs in the mutual fund industry. From a long-term perspective on downturns, consider investing in select AMC shares.

After the recent boom, it might be a better strategy to wait a bit in order to capitalize on the increasing investments through SIPs in the mutual fund industry. From a long-term perspective on downturns, consider investing in select AMC shares.