As investors seek to address the shared concern of weakness in the stock market that has led to broad-based sell-off, sending benchmarks on a roller-coaster ride, the singular issue that every market participant seeks to answer is how to ride out of the current slump in the market. The answer to this rather confusing question has become more important to the retail investors who participate in the stock market through their investments in mutual funds (MFs) in small ticket sizes at periodic intervals. With hindsight, it can be said that retail investors should not turn nervous whenever the markets turn volatile. Rather, they should stick to the investment goals by staying with, and growing, their portfolios in a systematic fashion through the most convenient investment platform available, the Systematic Investment Plan (SIP).
The current trend in market participation shows that investors’ faith in the market is growing and, more importantly, their trust in SIPs is increasing. In short, retail investors have finally come of age and are behaving in a matured manner. They seem to be ready to wait for the market to recover from the bottom and are eyeing long-term opportunities for growing wealth. They seem to have come to terms with the fact that the stock indices dived in the past only to recover to a new peak. Unlike in the past, investors are not running away from the market by closing their books. On the contrary, they are staying with their SIP books. This is evident from the surge in SIP enrolments, implying investors are sticking to their financial goals and as a result, their trust in SIP is growing.
To a greater extent, the credit should go to regulatory clarity that has helped investors to revisit their investment strategy. Market regulator Securities and Exchange Board of India (Sebi)’s decision to streamline the MF schemes by bringing umpteen schemes under broader classifications is a case in point. The new classification norms have brought in not only standardisation and clarity for the investors but multiple benefits as well. Since the new norms kicked in, investors are taking a relook at the scheme to know if there is any fundamental difference in their investment styles and strategies.
This is not to say that the proliferation of the schemes for the namesake has come to a close. Still there are many schemes including the sub categories in the market. But on the aggregate, there are only 10 equity categories within which an investor would be able to choose in tune with pre-set financial goals, investment horizon and risk appetite. It is better for the investors to seek the help of professional and qualified investment advisers who can help them navigate through the various options available.
Empirical evidence suggests that well-managed mutual fund schemes sail through tough market conditions and deliver higher returns in the long run. Therefore, retail investors should participate in the current market corrections rather than timing the market, and grow the future wealth in a systematic fashion. After all, the first principle of any market is to buy cheap and sell dear. And the sane advice for investors is to buy and buy in a down market instead of saying bye, bye.
(By Renjith RG, Associate Director at Geojit Financial Services)
(Disclaimer: These are the personal views of the author. Investors are advised to consult their financial advisor before investing.)