Pause, but don’t redeem
With investments in both equity and systematic plans falling, experts advise holding on to multi-cap and mid-cap schemes to earn good returns
With investments in both equity and systematic plans falling, experts advise holding on to multi-cap and mid-cap schemes to earn good returns.
Stock market indices may have recovered from March lows, but investors in equity funds don’t seem too enthused. The June data from the Association of Mutual Funds in India shows that flows into equity schemes have fallen to a four-year low of just ~249 crore. Even the systematic investment plan (SIP) book fell to a dismal ~196 crore.
There are many reasons for this weak show. The most important: Many investors are facing a fund crunch due to layoffs or salary cuts. So, they have either resorted to reducing or entirely stopping their investments. Also, industry players say that there is a set of investors who have exited their mutual fund schemes due to low returns in the recent past and are actively playing the market themselves.
Fund managers, on their part, aren’t too worried as of now. Says Sankaran Naren, chief investment officer, ICICI Prudential Asset Management Company: “We believe there would be a gradual reversal of this trend. The drop in equity assets is marginal and is largely on account of Coronavirus related developments.” And they have a good reason to be confident. Things still haven’t gone into the negative territory as it had during the financial sector meltdown and Lehman crisis in 2009.
According to A Balasubramanian, MD & CEO, Birla Sun Life MF, equity mutual funds had seen some redemption mainly from high net-worth individuals and institutional investors because t he market bounced back in the last few months, giving an opportunity to exit with profits. The Nifty up 43.3 per cent since March 23 lows. Similarly, the Nifty mid-cap and small-cap are up 38.7 per cent and 43.9 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. The Indian economy, in fact, is expected to shrink by 4.5 per cent. “All these point to the fact that though the stock market is rising , it is mostly on the 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
“Diversified equity funds in the multi-cap and mid-cap need to nurtured . Focus on asset allocation with relatively high weighting towards equity” A BALASUBRAMANIAN, MD & CEO, Birla Sun Life MF
financial pressure, but they should press the ‘pause’ button and not the ‘exit’ button. Says Nilesh Shah, MD, Kotak Mutual Fund: “Unless
“Investors should be invested in debt mutual funds. Anyone who misses investing into debt is missing a very important and stable asset class in a portfolio” SANKARAN NAREN, CIO, ICICI Prudential AMC
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.
“Unless we get medical solutions, normalcy can’t be taken for granted. Be overweight on gold, neutral weight on equity and debt and underweight on real estate” NILESH SHAH, MD, Kotak Mutual Fund
Investors must stick to their financial plan. Disciplined asset allocation is the best way to ride out the 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 t wo 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 situation 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 midcap need to nurtured and focus on asset allocation with the relatively high weighting 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 in asset allocation funds. An investor looking to invest for the long term can also consider schemes with a value bias.” And more important, Naren stresses on investing in debt mutual funds. “Anyone who misses i nvesting i nto 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.