What should mutual fund investors do in the run-up to the election results

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Updated: April 12, 2019 7:46 PM

The election in India is underway. Should MF investors focus their investment portfolio on elections?

Election in India 2019,equity mutual fund investors, mutual fund investors, MF, Mid caps, Small caps, SIPIn the run up to the election results, there could be certain sectors or specific funds that may look attractive.

Mutual Fund Investments: Over the next few weeks, stock markets may show high volatility as opinion polls, exit polls and then the final election results 2019 start to flow in. However, in practice, should investors actually be concerned of the elections in India 2019? Let’s see.

Should MF investors focus their investment portfolio on elections?

Most industry experts are advising mutual funds investors to take long term view and take the volatility associated with elections in their stride. Deepak Jasani, Head Retail Research, HDFC Securities says, “ Elections are big events that could result in high volatility and mutual fund investors need not panic just because of the event.”

Some investors may have the opinion that elections may have a long term impact on the future of economic polices in the country. “That would be a somewhat short sighted strategy in our opinion. History and the data demonstrates that elections do not have a meaningful long term impact on markets,” informs Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management.

As a MF investor, its probably the time to make use of the opportunities that the market may throw up. “There is no point in focusing on elections but what is important is that, if there are opportunities arising out of  volatility during this period the same could be made use of as an opportunity to buy the market especially in view of the fact that significant correction has already happened in the mid cap and small cap segments,” Dr. Joseph Thomas, Head Research- Emkay Wealth Management.

SIP investors

When it comes to many investors with existing SIPs and those who are waiting on the sidelines to start fresh SIPs, the election seems to be working as a speed breaker on the road. Here is what Jasani suggests “SIPs need not be halted just because of the elections as there is a chance that in case a SIP is stopped, then the cost averaging benefit may not be available to the investor in case of fall in values. However, for starting a SIP one may wait for another 2 odd months so that in case of a very unfavourable outcome, a call can be taken of lumpsum investment at lower levels.”

However, it all depends on one’s own risk profile and the risk taking ability. Tejas Khoday, CEO and Co-Founder FYERS (MCX Broking Member) has this view,“Investor who has very high risk tolerance may go with lump sum investment in this volatile outlook. If the investor gets it right, lump-sum investing can pay off more handsomely than SIPs if the market rallies.”

Which sector and market cap funds to choose now

In the run up to the elections, there could be certain sectors or specific funds that may look attractive or certain schemes that can be avoided as they could be more susceptible to higher volatility. “Historically sectors such as Consumer discretionary, financial services, media and agro- chemicals have given a good return in election run-up, says Khoday.

But, caution should given the front-seat if mid and small cap MF schemes are what you are thinking to invest in. “Mid caps and Small caps can be extremely volatile in the short run, hence, there could be higher chances of losing capital. But, in the long run, they are expected to yield good returns. Mid cap and Small cap funds tend to outperform the benchmark when the market has a bullish view and underperforms when the market sentiment is bearish,” says Milin Shah, Head – Product Development & Planning at HappynessFactory.in.

Jumping on to the mid-small cap bandwagon may be tricky as well. Dr. Thomas says, “Small caps became attractive after the recent sharp correction and since the last couple of weeks they seem to be showing some upward momentum. But one should not be carried away by temporary momentum and should wait and see whether the upward momentum is sustainable or not. In any case, the share of small caps should not be more that 5% to 10 % of the entire equity exposure of the portfolio.”

What to do

“What we would not advise at this time is to lock in losses, or exit the markets. For investors that have a very short time horizon, such as the coming quarter, should not be invested in equities,” says Sharma. As a equity MF investor, one should stay focused on the long term goals and the should avoid the temptation to time the market. “Instead of predicting election outcomes, focus on your financial goals. If you are investing in mutual funds based on the political scenario in the country, you are likely to make the wrong investment decision.” says Khoday. Its important to understand that ‘time spent in the market’ is more important than ‘timing the market’.

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