Free Fall in Indian Share Markets -
What Should Mutual Fund Investors Do, NOW?
Diminishing
Portfolio
Mumbai Stock Exchange, Sensex, moved from 38896 to 34376. Dropped nearly 4600
points, i.e. 12% drop in a single month. 12% return is a dream return for most
of us on the upside, but not on the downside that too in a matter of 2-3 days.
Equity mutual fund and equity investors are greatly impacted by this fall.
The
important truth is, Debt Mutual Fund is also not doing well and has been like
this for the last one year. See the graph given below. In this financial year,
we are back to square one, no return. With respect to nifty, not even a single
paisa return from the market since April 3 of this financial year (2018-19).
On
the other hand, table here shows the perceived less volatile debt fund returns
are less than that of bank fixed deposits for the last one year. Most of the
returns are in negative or single digits (less than 5 %) which is not even
close to savings bank interest.
What does this mean? It is reality that both
equity market and debt market has not done very well in the last one year. Will
worrying about it solve the problem of mutual fund investments? Lets find out.
Status quo
There could be lots of first-time investors who recently entered
the mutual fund space and maybe this is their first time to see a double digit
fall (12%) in the markets. Naturally this shock would be very severe for them.
But they should be patient. It’s part of the game.
Markets going up or down is common in the history of BSE over the years.
Falling 65% and recovering 130% have been etched in stones many times before.
The table below gives SIP returns for last 1 year – as expected most of them
are not good.
So, what should we do with this SIP? Read on to know more and
learn how to stay cool and add to your investments when others are selling in
distress or fear or both.
Likely reasons
Why are they not doing well? There are number of reasons, some of
them are:
1.
Increase in crude oil prices
2.
Global trade wars
3.
Geo political tensions
4.
Elections nearby
5.
IL & FS fiasco
6.
Inflation – high expectations
7.
Interest rate is expected to raise
And so on.
Going forward
What should we as Mutual fund investors do in this scenario?
SIP
First and foremost, investor should not stop SIP even though last
1 year SIP returns are negligible and they are sitting in loss in your
portfolio. The concept of SIP is we continue to purchase units both in the low
market as well as in the high market. For example, accumulation of mutual fund
units via SIP in three months with different NAV of 10, 12 and 8 is as follows
– 2000/10 = 200 units, 2000/12 = 167 units and 2000/8 = 250 units. When
the market falls NAV is low, and we get more units, which is beneficial. When
the market recovers back from the slump, for more units accumulated, our
portfolio will go up.
By stopping SIP, we are defeating the concept of SIP.
Hence, no SIP investor should panic about the current return of SIP and stop
SIP. In the current scenario, it is really a good time to add
mutual funds and continue SIP.
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Value Research Online
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Date: 07-Oct-2018 11:42 - Sip returns for
last one year
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Fund
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Rating
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Category
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1-Year Return
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Aditya Birla Sun Life Focused Equity Fund
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* * * *
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EQ-LC
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-12.87
|
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Axis Focused 25 Fund
|
* * * *
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EQ-MLC
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-12.91
|
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DSP Midcap Fund - Regular Plan
|
* * * *
|
EQ-MC
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-27.2
|
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HDFC Mid-Cap Opportunities Fund
|
* * * *
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EQ-MC
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-26.32
|
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ICICI Prudential Blue-chip Fund
|
* * * *
|
EQ-LC
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-9.4
|
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Invesco India Growth Opportunities Fund
|
* * * *
|
EQ-L&MC
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-15.17
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Kotak Emerging Equity Scheme Regular Plan
|
* * * * *
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EQ-MC
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-27.92
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L&T Midcap Fund
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* * * * *
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EQ-MC
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-26.15
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Mirae Asset Emerging Blue-chip Fund - Regular Plan
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* * * * *
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EQ-L&MC
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-18.26
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Reliance Large Cap Fund
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* * * *
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EQ-LC
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-10.85
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SBI Focused Equity Fund
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* * * *
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EQ-MLC
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-18.08
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Sundaram Large and Mid-Cap Fund
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* * * *
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EQ-L&MC
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-14.06
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Opportunity to Buy Equity mutual funds
Really, we do not know whether the markets will slump further or
reverse its current form. One school of thought, nifty may again go to 4
digits, i.e. below 10000. Every analyst will have some view or other in this
and no one can predict the bottom-line. But the fact is, significant correction
has already happened and let us add equity mutual funds in more instalments.
Whenever market goes down, it is very difficult to predict the extent of fall.
But whenever there is panic, and when others are selling, you
should venture into it and buy more.
By that logic, it is better
time to add lump sum investments at frequent intervals in equity funds and if
we continue to add equity funds for the next six months till the elections, it
may reap good harvest.
STP from debt to equity mutual funds..!
If you already have debt investments, it is better to transfer
some money from debt to equity. This could be the right time and opportunity
for moving into equity via instalments through STP.
Always remember Asset allocation,
having both equity and debt will reduce risk in our portfolio. Suitably add
equity from debt, but not everything from debt to equity
Equity mutual funds for the volatile markets
The next big headache that is bigger than market fall is, how to
choose the right equity funds for investments now. The fall in different
category of funds are in varying orders and that is the way it used to be. Mid
and small caps fall greater than large caps but gives more returns than large
caps when the going is good. We should bet on multi cap funds over
large cap funds.
We should consider diversified funds over
sector funds. Someone would wish to buy the most beaten sector in the hope of
recovery. Banking and financials funds are for risky investor and not for all.
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Index
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High
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Now
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Diff
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% change
|
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Nifty small
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9559
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5911
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3648
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38%
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Nifty mid cap
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21731
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16299
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5432
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25%
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In Lighter veins
Do not see the portfolio value every alternate day and increase
your blood pressure value.
Finally
At any cost don't get into panic mode and don't give up your
hope. Whenever market falls, remember that whatever goes down must come up. We
will have to wait and see if it goes up now or in 1 year or later.
But it is
not the time for selling and it is the time for periodic buying for the next 6
months.
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