All diversified equity mutual fund categories are now in green: Know what to do

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Updated: November 2, 2019 1:43:58 PM

Even though the MF categories are in positive territory, individual MF portfolio may still not have recovered, especially for those who had started investing in the recent past.

Sensex, diversified equity MF categories, SIP or lump sum, CAGR, salariedAs a new investor, there is always a conundrum to face – Whether to invest through SIP or as a lump sum.

Mutual Fund Investment: The front line stock market indices are making their all-time highs or are hovering around their high levels. With this, almost all diversified equity mutual fund categories are back in green and showing positive returns over different periods. Over the shorter term as short as 3 months to over 10 years, the returns are in positive territory across equity fund categories. Whether it is a large-cap, mid-cap or small-cap fund, the absolute returns for periods less than a year and compound annualised growth rate (CAGR) for returns over one year are positive. As per Valueresearchonline data, as on November 1, the large-cap category had generated 2.6 per cent, 3.71 per cent, 7.75 per cent and 14.15 per cent over the 1-week, 1-month, 3-month and 1-year tenure. The Sectoral Fund categories such as Pharma and Information Technology are, however, in red across some time periods.

Even though the MF categories are in positive territory, individual MF portfolio may still not have recovered, especially for those who had started investing in the recent past. Several diversified equity MF schemes especially mid-cap schemes are still in the red. But, that should deter investors as an investment in equity schemes are meant for long term.

( Source: Valueresearchonline – As on Nov 1, 2019)

( Source: Valueresearchonline – As on Nov 1, 2019)

Those investors who already have the SIP in the chosen schemes may continue linking them to a long term goal. It is absolutely impossible to predict the stock market movements and one should refrain from trying to time the market as well. Equities as an asset class hold the potential to generate high inflation-adjusted returns over the long term compared to other asset classes.

As a new investor, there is always a conundrum to face – Whether to invest through SIP or as a lump sum. The jury is still out as the answer also depends on the situation, but the following factors may help you decide better:

  • For a salaried individual and even for a non-salaried individual, SIP is the right approach to keep saving on a regular basis.
  • But, if intermittently if you have a lump sum to invest for a goal that is away at least 7 years or more, invest the lump sum as and when markets tend to remain tepid.

Choosing the right MF scheme is also important. Even though the category returns may paint a rosy picture, not all MF schemes may perform in a similar manner. Let us look at the large-cap index which has given 14.15 per cent over the 1-year period. As on date, the best MF scheme in the category is Axis  Bluechip fund, giving 26.66 per cent while several of the schemes are in lower single digits.

However, do not merely look at the short term scheme performance while choosing funds. Look at the scheme’s consistency in generating returns over longer periods. A fund beating its benchmark as well category return may be preferred over others. Also important is that you diversify your MF portfolio across large-cap and mid-cap funds and also across market capitalisation. The small-cap and sector funds are highly volatile and can change the fortunes of your portfolio on either side. Get into them if risk profile allows as frequent tracking is equally necessary for them.

The volatility is inherent to the stock market as different factors impact the movement of stock prices over a period of time. A drop of 500 points or more in the index should not worry you till your MF investments are for long term needs. Lastly, if your goals are nearing, start de-risking from equities to the debt assets.

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