According to A Balasubramaniam, MD & CEO, Birla Sun Life, equity mutual funds had seen some redemption mainly from high networth individuals and institutional investors because the market bounced back in the last few months, giving an opportunity to exit with profits. The Nifty up 41.1 per cent since March 23 lows. Similarly the Nifty mid-cap and small-cap are up 36.8 per cent and 42 per cent, respectively.
But despite the sharp rise, a large number of investors are worried about their investments
in the stock market, given the uncertain economic outlook. The global economy is expected to shrink by five per cent, according to the International Monetary Fund. Even the growth rate of the Indian economy is expected to fall by 4.5 per cent. “All these point to the fact that though the stock market is rising, but it is mostly on hope that earnings can only improve from here on,” says a fund manager.
What’s the way out: Investment experts believe that people may have had stop investments
due to financial pressure, but they should press the ‘pause’ button and not the ‘exit’ button. Says Nilesh Shah, MD, Kotak Mutual Fund: “Unless we get medical solutions in the form of drugs or vaccine or we learn to live with the virus, normalcy can't be taken for granted. Investors must stick to their financial plan. Disciplined asset allocation is the best way to ride out volatility.” For direct investors, his advice is – avoid penny stocks.
Adds Naren: “Such development holds the potential to derail one’s focus on long-term investments. For those investors facing salary cuts, one can consider reducing SIP amount or using SIP pause feature available with most of the leading mutual fund companies.”
Agrees Balasubramanian: “If someone needs cash during the lockdown period, he can choose temporary pausing of the SIP for, say for two months and resume once again.” SIP is meant to meet ones long-term goal and purpose, hence continue investing, say experts.
Investors who have had to stop or reduce their SIPs need to be clear that once things improve, they would need to restart them with, and if their financial status improves, increase the amount to make up for the lost time.
Strategies to follow: In such times, having a clear strategy is important. Says Balasubramanian: “Though economic recovery will take some time, diversified equity funds in the multi-cap and mid-cap need to nurtured and focus on asset allocation with relatively higher weight towards equity.
According to Naren: “It is wise to apply asset allocation rules when it comes to investing in equities. The other better option is to consider investing into asset allocation funds. Investor looking to invest for the long term can also consider schemes with value bias.” And more important, Naren stresses on
investing in debt mutual funds. “Anyone who misses investing into debt is missing a very important and stable asset class in a portfolio,” he adds. Shah’s mantra: Be overweight on gold, neutral weight on equity and debt and underweight on real estate.
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