Flexi-cap funds are an excellent choice for investors, says Varun Goel of Mirae Mutual Fund | Mint

While maintaining a positive outlook on IT, pharmaceuticals and chemical sectors, Varun Goel, Senior Fund Manager (Equity) of Mirae Asset Investment Managers says that he does not expect any major change in capital gains taxation or exemptions for mutual funds in Budget 2025.

In an email interaction with Mint, he shares his views on investing in active and passive funds, using SIPs for wealth creation and the category of mutual funds that are likely to do well.

Edited Excerpts

What do you expect from Budget 2025 in terms of new exemptions and/or deductions against investments in mutual funds?

We do not expect any major changes in capital gains taxation or exemptions for mutual funds in Budget 2025. Mutual funds play a key role in infrastructure financing and supporting monetary policy. Maintaining stability in taxation policies is essential to ensure they continue contributing effectively to the economy.

Which are the sectors that are likely to do well this year?

We have a positive outlook on the IT, pharmaceuticals, and chemicals sectors, driven by strong export opportunities. On the domestic front, BFSI, especially private banks, capital markets, and consumer discretionary industries are expected to perform well. 

However, we are under-weight on global commodities as they may face challenges due to mismatch in supply and demand, warranting a cautious approach in this space.

With benchmark indices under pressure, would you suggest investors to explore investing in passive funds such as index funds and ETFs?

Both active and passive funds play unique roles in meeting diverse investor needs. While passive funds like index funds and ETFs offer cost efficiency and market-mirroring returns, active funds can outperform in specific segments like small caps.

As of November 2024, the Nifty Small Cap 250 Index has demonstrated resilience with a compounded annual growth rate (CAGR) of about 17 percent in the last two decades. This beats performance of indices like Nifty and Sensex. 

That said, active funds can be relatively riskier compared to index funds. Investors should consider both strategies based on their risk-return profiles.

What are your views on investing in active funds instead of passive?

Active and passive funds both have unique roles in an investor’s portfolio. Active funds provide the opportunity for alpha generation through research-driven stock selection, particularly in less efficient markets like small caps. Meanwhile, passive funds offer diversification at lower costs. 

Both categories will continue to grow, driven by their respective value propositions.

What do you think about the growth of the mutual fund industry in 2024? Now there are over 225 million mf folios. SIP contributions have been rising month after month. What do you think is driving this spike?

One of the biggest reforms in the last 10 years has been the introduction of the inflation targeting framework by RBI. As inflation has come under control, we have seen shifting of household savings from physical assets to financial assets.

This is a multi-decadal trend and will likely continue to continue going forward. Moreover, SIPs have proven their utility and ability to create wealth, thus attracting further attention from retail investors.

Broadly, which are the mutual fund categories (e.g., flexi cap, dynamic asset allocation, midcaps, etc) in which retail investors are recommended to invest?

Flexi-cap funds are an excellent choice for investors looking for a single fund to fulfil their equity allocation needs. These funds dynamically adjust their exposure across large, mid, and small-cap segments, offering a balanced mix of diversification and growth potential.

This flexibility makes them well-suited to varied market conditions and ideal for investors seeking to manage risk while benefiting from India’s broad market opportunities.

Any other recommendations for new investors?

After exceptional returns between FY19 and FY24, the market may see consolidation and corrections in FY25 and the first half of FY26. This will remove froth from many pockets of the market and bring down the valuations to attractive levels. 

Thus, this phase of volatility provides opportunities for disciplined investors to build a high-growth equity portfolio for the next 4–5 years.