What should the country's mutual fund (MF) investors, with in-built high return expectations, do in 2018? Given that fund managers do not expect a repeat of 2017 in terms of high return?
It is a year marked by election schedules and likely to be quite volatile, due to domestic and global factors. And, say fund managers, investors must not stop their Systematic Investment Plans or SIPs in uncertain times. They should do so only when they need money, not otherwise.
"The years before have rewarded investors well. However, there should not be any question of stopping SIP till one needs the money. I believe markets will be more volatile in nature but one must continue with the discipline of investing through SIP mode," says Sunil Singhania, global head of equities at Reliance Capital.
With a little over 18 million SIP accounts, the monthly flow to MFs through this mode of investment is about ~60 billion. This is sixfold increase against the sub-billion inflow after the 2008 crisis. SIP, in itself, has become bigger as a brand than MFs; nowadays, these three letters instantly establish a connect with investors.
S Naren, chief investment officer (CIO) of ICICI Prudential MF, ssid the Indian equity market was in a mid-cycle. And, said: "Investors with existing SIPs may continue investing in equities. For new investors, we recommend investing in dynamic asset allocation schemes. Those who want to participate in diversified equity schemes could consider large-cap oriented schemes."
Historically, small investors tend to stop their investments during bad or volatile times. And, unfortunately, they come back when the markets trade at highs. The past three years would not be an exception. There have been a large number of investors and money flowing in, escalating as the markets traded at historical highs through 2017.
It is also worth noting that since the end of 2013 until now, the number of first-time investors - who have not seen deep corrections or high volatility - has been on the rise all across the country. Therefore, their investment behaviour is yet to be seen during different cycles.
"Though investors have turned quite mature (in the background of much effort to spread financial literacy), we can't say with full confidence yet how they will react if the markets suddenly turn highly volatile or there is 15-20 per cent correction. Their psyche during a panic situation can't be judged in good times," said the chief executive of a mid-size fund house.
The source for concern among fund managers emerge from the fact that parameters such as the capex cycle, credit growth and capacity utilisation are yet to improve. As uncertainty from global events cannot be ruled out and earnings recovery remaining patchy, they expect market volalatility in the near term.
Further, mid-cap and small-cap schemes are a clear No from fund managers if one's investment horizon is less than three years. But, if appetite for risk taking is high, one could look at such schemes even at current times, provided the investment horizon is nowhere less than three to five years.
Mahesh Patil, co-CIO of Aditya Birla Sun Life MF, has continuously been advising investors to rationalise their return expectations. He said the pace of benchmark-beating returns could well take a break.