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Thursday, October 11, 2018

Free Fall in Indian Share Markets - What Should Mutual Fund Investors Do, NOW?


Free Fall in Indian Share Markets - 

What Should Mutual Fund Investors Do, NOW?


Diminishing Portfolio

Mumbai Stock Exchange, Sensex, moved from 38896 to 34376. Dropped nearly 4600 points, i.e. 12% drop in a single month. 12% return is a dream return for most of us on the upside, but not on the downside that too in a matter of 2-3 days. Equity mutual fund and equity investors are greatly impacted by this fall. 

The important truth is, Debt Mutual Fund is also not doing well and has been like this for the last one year. See the graph given below. In this financial year, we are back to square one, no return. With respect to nifty, not even a single paisa return from the market since April 3 of this financial year (2018-19). 

On the other hand, table here shows the perceived less volatile debt fund returns are less than that of bank fixed deposits for the last one year. Most of the returns are in negative or single digits (less than 5 %) which is not even close to savings bank interest. 

What does this mean? It is reality that both equity market and debt market has not done very well in the last one year. Will worrying about it solve the problem of mutual fund investments? Lets find out.

Status quo

There could be lots of first-time investors who recently entered the mutual fund space and maybe this is their first time to see a double digit fall (12%) in the markets. Naturally this shock would be very severe for them. 

But they should be patient. It’s part of the game. Markets going up or down is common in the history of BSE over the years. Falling 65% and recovering 130% have been etched in stones many times before. The table below gives SIP returns for last 1 year – as expected most of them are not good. 

So, what should we do with this SIP? Read on to know more and learn how to stay cool and add to your investments when others are selling in distress or fear or both.


Likely reasons

Why are they not doing well? There are number of reasons, some of them are:
1.          Increase in crude oil prices
2.          Global trade wars
3.          Geo political tensions
4.          Elections nearby
5.          IL & FS fiasco
6.          Inflation – high expectations
7.          Interest rate is expected to raise
And so on.

Going forward

What should we as Mutual fund investors do in this scenario?

SIP

First and foremost, investor should not stop SIP even though last 1 year SIP returns are negligible and they are sitting in loss in your portfolio. The concept of SIP is we continue to purchase units both in the low market as well as in the high market. For example, accumulation of mutual fund units via SIP in three months with different NAV of 10, 12 and 8 is as follows – 2000/10 = 200 units, 2000/12 = 167 units and 2000/8 = 250 units. When the market falls NAV is low, and we get more units, which is beneficial. When the market recovers back from the slump, for more units accumulated, our portfolio will go up. 

By stopping SIP, we are defeating the concept of SIP. Hence, no SIP investor should panic about the current return of SIP and stop SIP. In the current scenario, it is really a good time to add mutual funds and continue SIP.

Value Research Online
Date: 07-Oct-2018 11:42 - Sip returns for last one year
Fund
Rating
Category
1-Year Return
Aditya Birla Sun Life Focused Equity Fund
* * * *
EQ-LC
-12.87
Axis Focused 25 Fund
* * * *
EQ-MLC
-12.91
DSP Midcap Fund - Regular Plan
* * * *
EQ-MC
-27.2
HDFC Mid-Cap Opportunities Fund
* * * *
EQ-MC
-26.32
ICICI Prudential Blue-chip Fund
* * * *
EQ-LC
-9.4
Invesco India Growth Opportunities Fund
* * * *
EQ-L&MC
-15.17
Kotak Emerging Equity Scheme Regular Plan
* * * * *
EQ-MC
-27.92
L&T Midcap Fund
* * * * *
EQ-MC
-26.15
Mirae Asset Emerging Blue-chip Fund - Regular Plan
* * * * *
EQ-L&MC
-18.26
Reliance Large Cap Fund
* * * *
EQ-LC
-10.85
SBI Focused Equity Fund
* * * *
EQ-MLC
-18.08
Sundaram Large and Mid-Cap Fund
* * * *
EQ-L&MC
-14.06

Opportunity to Buy Equity mutual funds

Really, we do not know whether the markets will slump further or reverse its current form. One school of thought, nifty may again go to 4 digits, i.e. below 10000. Every analyst will have some view or other in this and no one can predict the bottom-line. But the fact is, significant correction has already happened and let us add equity mutual funds in more instalments. Whenever market goes down, it is very difficult to predict the extent of fall. 

But whenever there is panic, and when others are selling, you should venture into it and buy more

By that logic, it is better time to add lump sum investments at frequent intervals in equity funds and if we continue to add equity funds for the next six months till the elections, it may reap good harvest.

STP from debt to equity mutual funds..!

If you already have debt investments, it is better to transfer some money from debt to equity. This could be the right time and opportunity for moving into equity via instalments through STP. 

Always remember Asset allocation, having both equity and debt will reduce risk in our portfolio. Suitably add equity from debt, but not everything from debt to equity

Equity mutual funds for the volatile markets

The next big headache that is bigger than market fall is, how to choose the right equity funds for investments now. The fall in different category of funds are in varying orders and that is the way it used to be. Mid and small caps fall greater than large caps but gives more returns than large caps when the going is good. We should bet on multi cap funds over large cap funds. 

We should consider diversified funds over sector funds. Someone would wish to buy the most beaten sector in the hope of recovery. Banking and financials funds are for risky investor and not for all.

Index
High
Now
Diff
% change
Nifty small
9559
5911
3648
38%
Nifty mid cap
21731
16299
5432
25%

In Lighter veins

Do not see the portfolio value every alternate day and increase your blood pressure value.

Finally

At any cost don't get into panic mode and don't give up your hope. Whenever market falls, remember that whatever goes down must come up. We will have to wait and see if it goes up now or in 1 year or later. 

But it is not the time for selling and it is the time for periodic buying for the next 6 months.



Free Fall in Indian Share Markets - What Should Mutual Fund Investors Do, NOW? Reviewed by S. Chitra on October 11, 2018 Rating: 5 Free Fall in Indian Share Markets -  What Should Mutual Fund Investors Do, NOW?   by  Mr.   Meenakshi Sundaram Kanna n   ,  https://...

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