Market remains volatile: Is it right time to invest in equity mutual funds?

By: | Updated: January 10, 2017 10:58 AM

After the demonetisation of Rs 500 and Rs1000 notes, the market has remained volatile. In fact, both the Sensex and the Nifty have slipped into the negative zone many a times and have not reached their earlier highs. They are expected to remain volatile going ahead also.

Investment, ELSS, SIP, lock in period, 3 years, tax saving, copounding, AMFIIf you are investing in mutual funds through the SIP route, you don?t need to time the market.

After the demonetisation of Rs 500 and Rs1000 notes, the market has remained volatile. In fact, both the Sensex and the Nifty have slipped into the negative zone many a times and have not reached their earlier highs. They are expected to remain volatile going ahead also.

Investors, therefore, are a little worried: when to invest and when not to invest. However, if you are investing in mutual funds through the SIP route, you don’t need to time the market. This is one of the reasons why you should go for equity mutual funds.
“Since April 2016, the overall equity funds category has seen current financial year’s highest net inflow in the month of Dec ‘16, i.e. Rs.14029 cr, which is Rs.1324 cr higher than Nov ‘16,” says Anjaneya Gautam, National Head-Mutual Funds, Bajaj Capital.

What to do under such situation?
If you have already invested your money in equity and debt instruments, then you need to follow asset allocation strategy under proper guidance with your financial adviser. New investors can invest their money since the market is on the lower side.
“Equity’s overall AUM is now Rs.5.34 lakh cr., highest after Oct’16 (Rs.5.45 lakh cr). Despite the market being weak since Nov ’16, equity AUM has recovered due to fresh investments by investors. As we still have three months to end the current financial year, we may close the year with highest ever equity and overall AUM in mutual funds. Investors’ interest is continuously growing in equity investments. It is right time to cash in the opportunity, which has come after demonetization announcement, US elections and US Central Bank action on their interest rates,” says Gautam

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Which funds are more attractive to invest and in which form?
After the demonetization, various moderate investors who do not want to take a risk in a pure equity-oriented fund can go for balanced funds because these funds give an exposure of debt and equity in 50:50 ratio. So, in such a case, debt will provide safety under volatile condition while equity portion will boost their investment amount.
“In Dec 2016, balanced funds have seen an inflow of Rs.3,947 crore. It is Rs.315 crore higher than the previous month,” says Gautam.
Most preferred mode of investment is systematic investment plans (SIP’s) because it gives you various benefits like the compounding effect and the rupee cost averaging effect.
“Running SIP volume of approx. Rs.3,900 cr a month is a major support for fresh flows in the markets. On annualised basis, it works out to more than Rs.46,000 cr and is increasing. SIPs, ELSS and balanced funds can be attributed for contributing sizable for the overall equity inflows in the current year,” says Gautam.
However, it is suggested that while investing in ELSS category, which has a 3-year lock-in period, one must go for investing a lump sum amount.

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Is it best to save tax under ELSS fund?
ELSS is one of the better options for tax savings as it is having the lowest lock-in period for investment, that is only 3 years. Young investors who can take a risk and want to appreciate their capital should go for ELSS fund.
Also, “the ELSS category has seen an inflow of Rs.907 crore in Dec 2016 and it is expected that it will bring higher inflows in the months between Jan 2017 and March 2017 because investors will be looking forward to tax saving options. ELSS, with attractive market valuations, is making a strong case for fresh investments,” says Gautam.

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