Last Updated : May 25, 2019 01:04 PM IST | Source: Moneycontrol.com
Golden Rule: Book profits in bull market and take opportunities in bear market
The MF industry witnessed a spectacular growth in 2018, rose by 13 percent as compared to 2017 and this growth is expected to continue this year
Retail participation in the Indian markets has witnessed a steady rise in the past few years. Leaving the past few months aside, strong macro-economic fundamentals and various government reforms have strengthened the confidence of retail investors.
This has led them to prefer equities and mutual funds as an investment option over the traditional savings options and small savings schemes.
The mutual fund industry witnessed a spectacular growth in 2018, rose by 13 percent as compared to 2017. In 2019, the mutual fund houses are expecting this robust growth story to continue.
Mind you, this growth has been despite rising crude oil prices, rupee depreciation and stock market volatility – the retail investors have continued to remain buoyant with their SIP investments.
The main factors which have contributed to the changing patterns are that the mutual fund industry is now considered as a viable solution for meeting different financial goals.
For example, in case you are planning to save for a specific goal like retirement or for children’s education, the go-to option now is a mutual fund. The flexibility of opting for a healthy mix of options between debt and equity-oriented schemes is a boon for investors.
Besides diversification across asset classes, retail investors have also started understanding the benefits of long-term investing.
More retail investors are committing to their investments by regularly sticking to their Systematic Investment Plans (SIPs).
In the past year, the SIP flows have continued to be robust, as they poured in liquidity and equity funds. The SIP flows for April 19 increased to Rs 8,328 crore, the growth in SIP flows currently stands at over 24 percent on a year-on-year (YoY) basis.
The analysts have predicted this was on grounds of healthy MF flows into equity coupled with positive FII net inflows; give a positive indication for the equity markets. This has been thereon increasingly evident from the SIP flows in the economy.
In the long run, to reap the benefit of long term investing, considering a time horizon is also important. I have observed that investors become blind to risk in a rising market and blind to opportunities in the bear market.
By simply following the asset allocation, one can take control of emotions and bring in more discipline in the investment process.
Asset allocation also prompts one to rebalance the portfolio. If your asset allocation is 70:30 (equity & debt) and because of the bull market this ratio changes to 85:15, asset allocation suggests that one should book profits in equity and move the profits into debt.
Similarly, take the bear market – if your asset allocation has changed to 50:50, then one needs to take money out of debt and invest in equity.
By following asset allocation and rebalancing one's portfolio, one can book profits in a bull market and take advantage of opportunities in the bear market.
I feel awareness and technology has helped the industry move to the next stage in meeting investors' expectation.
The mutual industry has already started deploying technology intelligently across all its processes and has benefited significantly from the digitalization of the payment spectrum.
To sum up, I feel it is a positive start to make mutual funds as a versatile investment option for investors. Now we have to wait and watch how fast our country can see the conversion of savings to investments in the coming years.
(The author is Head, Personal Wealth Advisory, Edelweiss)
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.