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India’s stock market is witnessing a slowdown, and this has put many equity MF investors on the edge. Read this article to find out whether these investors should continue with their equity investments or shift to another fund.
India’s current economic slowdown and volatile movement in equities have made many investors anxious, particularly those who have invested in mutual funds. A lot of them are now wondering whether they took the right call over parking their money in equity MFs. Some are reportedly considering shifting their investments to debt mutual funds. In this article, we will focus on the course of action that such investors must take to reap the maximum benefits of their investments. But first, let us understand what equity mutual funds mean.
Equity mutual funds are those that primarily invest in stocks and shares of companies. They generate better returns when compared with debt funds and fixed deposits. However, it is important to note that the risk associated is also higher since a large chunk of the corpus is put into equities, which could rise or fall without any prior warning. Fund managers undertake detailed market research and analysis and then carefully select stocks and shares of companies that are predicted to perform well.
At present, the market is trading at relatively lower valuations as compared to that of some time ago. Most financial experts suggest that investors continue with their asset allocation plan, despite the market conditions. When it comes to equities, it wouldn’t be wise to base investment decisions solely in light of the market’s prevailing conditions. Equities keep witnessing upward and downward movements since they are a volatile asset class. People mustn’t be worried about their SIPs getting negative, and should continue with them, state many experts. Investments in equity mutual fund schemes via SIP should be made for long periods. In this long cycle, the ups and downs will help with rupee cost averaging.
Investors should refrain from judging an equity mutual fund scheme based on its one-year returns alone. Instead, they should park money for the long term, and evaluate its performance after three or five years. Should an MF scheme underperform its benchmark after three years, then the investor can take a call to shift to another fund.
Experts have added that individuals can make use of the current slowdown to create more wealth. Periods of downturn may be a good time for investors to top-up equity MF investments. Given that the funds will be available at a lower price, it becomes easy to create a larger corpus. The slowdown is also a good time to review and correct one’s expectations from the stock market for the next few years. Based on how the past performance has been, investors can realign their portfolio’s expected returns accordingly.
This route of investment is best suited for those individuals who are willing to take on increased risk for the potential to earn high returns. Investors who are risk-averse and are not seeking capital appreciation are advised to not opt for equity mutual funds. Rather, they can choose to invest in debt mutual funds, which are safer but tend to provide lower returns as against equity mutual funds.
Given that such investments are managed by professional fund managers, the investor wouldn’t have to put in too much time undertaking research and analysis. The individual would simply need to hand over his or her funds to the AMC and the fund manager will take care of the investments. The performance of an equity MF fund investment is dependent on the stocks that have been chosen by the fund manager.
To make the most out of investments, individuals should have a realistic and solid financial plan, which they must stick to, irrespective of any short-term market movements. It is important to keep following the investment strategies, especially during times of market volatility. Investments in equity mutual funds should be made for the long term, like five or ten years. Investors are advised against making any hurried decisions based on temporary movements, and must remain invested for the whole investment tenure.
Recommended Read: What is a Zero Risk Debt Mutual Fund Scheme?