Mutual Fund Investors Get Iffy As Markets Play Spoilsport: What Should You Do?
Don't be in a hurry to exit Mutual Funds and scamper back to physical assets - stay firm and resolute in your decision to invest
The Mutual Fund Industry's numbers still look impressive - the Quarterly Average AUM for the quarter ended June 30, 2018 stood at Rs. 23.40 lakh crore (nearly 20% higher than the same period a year ago), but investors seem to be getting iffy with the recent lack of returns from funds across the board.
Earlier, the AMFI-engineered Mutual Fund Sahi Hai campaign that rang ubiquitously, succeeded in drawing thousands of first time investors into the fold, especially via the SIP route. Equity markets remained supportive throughout 2017, and a number of these new investors achieved linear short-term returns - to their long-term detriment.
Unfortunately, a lot of these investments flowed in via the unadvised, direct plan route - and many investors succumbed to the pernicious habit of investing based on flimsy research that revolved mainly around shortlisting schemes based on "past returns". Naturally, this oversimplified fund-selection technique drove a lot of these investors towards high risk mid and small cap funds, several of which have delivered returns as low as -10% since the start of the calendar year.
Even trusty old bluechip funds have disappointed, delivering flattish returns since the start of 2018 - the category average for large cap funds since 1st January 2018 has been barely 0.38%.
Leading Financial Planners now report that many mutual fund investors who signed cheques with gusto in 2017, are starting to get doubtful about their decisions to migrate away from the haven of fixed deposits - and that the pace of redemptions is consequently gathering a worrying degree of momentum. Many of these redemptions are purportedly taking place to "prepay home loans" or "make a down payment for a new house", signalling that many investors are already running out of patience and ditching their short-lived tryst with financial assets outside the realm of the traditional.
If you're a new Mutual Fund investor and are second guessing your decision to invest, what should you do? Follow three simple rules. One, seek out the services of a qualified, recommended Mutual Fund advisor. Going it alone to save half a percentage in annual commissions can be more detrimental than you think. Two, follow basic thumb rules of asset allocation. While returns from equity mutual funds may remain muted for even the next 12-18 months, a number of debt funds are offering YTM's of 9 per cent plus and are definitely worthy of consideration at this time. Allocate at least 50 per cent of your assets to a well-selected portfolio of debt funds. Three, if you're SIP-ping it, don't stop! Mutual Fund SIP's are notorious for going through phases of flat or even negative returns but keeping your SIP's running dispassionately over extended timeframes is a strategy that will definitely pay off in the long run. Don't be in a hurry to exit Mutual Funds and scamper back to physical assets - stay firm and resolute in your decision to invest and stay put while following the three rules described above.