Fund managers warn against big equity investments

With upcoming global events like the US  elections and the Federal Reserve rate setting meet, fund managers are cautioning investors against putting lumpsum investments in equity mutual fund (MF) schemes. One must, they say, continue with systematic investment plans (SIPs) and use only sharp corrections in the market for such big-ticket purchases.

Already this year, the segment has been seeing a reduction in lump sum investments. However, players believe there could be an uptick, particularly from those who had redeemed their investments earlier this year.

“Though the medium to long-term outlook looks decent, there could be short-term pain points, given (such) upcoming global events. We expect volatility during such times. Given this, at the current juncture, lumpsum investments might not be advisable. But, one should not stop the SIP mode of investment, which actually should be preferred. Our markets are certainly not cheap at this time,” said Mahesh Patil, co-chief investment officer (CIO, equity) at Birla Sun Life MF.

 

Thus far in the current financial year (till September), inflow in the equity segment (diversified and tax-saving schemes) have been Rs 22,200 crore. The same period last year had seen inflow worth Rs 53,700 crore. Though gross sales have been robust thus far, it has been countered with strong redemptions, too, putting pressure on the net inflow of money in equity funds.

Amit Nigam, equity head at Peerless MF, says, "Though it is true that the impact of volatility in stocks wears down over time, it is equally true that the short-term impact of volatility can cause serious concerns in the mind of even the most long-term investor. SIPs are recommended in equity markets as it not only cushions the impact of volatility but brings an element of discipline towards investments. In case one wishes to put in a lumpsum, investors should use any sharp corrections to allocate an additional sum in order to have an equity asset at a good price."

If one still has to invest a large chunk, fund managers say they should look at schemes designed to benefit from volatility. Manish Gunwani, deputy CIO at India's largest fund house, ICICI Prudential MF, says: "Investors can go for lumpsum investment in dynamic asset allocation funds or equity-oriented balanced funds, as these aim to benefit from volatility and can be suitable for investors aiming to participate in equities with lower volatility." For retail (small investor) participation, investing through SIPs is preferred, he says.

‘Dynamic asset allocation’ equity schemes have been gaining traction in the past year. Such funds have a flexible investment mix between debt and equity, depending on the market situation. They are designed to offer moderate return, with downside protection.

Currently, the equity asset management of the MF sector is about Rs 5 lakh crore, with nearly 37 million equity accounts. Over the past two years, investment through SIP has been rising. The SIP monthly book is about Rs 3,500 crore, ensuring fund managers get  sticky investable funds worth Rs 40,000 crore a year.