Fund managers advise investors not to panic even as market tumbles

Rekha Parmar, a Mumbai-based investor who started her systematic investment in equity through mutual fund a year back, was worried a lot on Wednesday. Given the sharp intra-day correction in stock market on Wednesday, she called her advisor to enquire whether to stay or move out.

Parmar is not alone in thinking so as many new investors in the mutual fund industry over the last two years may be going through the same set of questions. After all such wild volatility in the market on an action-packed day is likely to have psychological impact on investors leading them to panic and withdraw their investments.

A day which witnessed Indian shares facing the double whammy impact of demonetisation of big ticket size currency notes and Donald Trump clearing the way to be the United States' 45th President; Indian mutual fund investors have got advice from fund managers to stay put and do not panic.

According to fund managers such volatility was expected and going forward this phase would continue till things settle down eventually. They added that rather than stopping investments or withdrawing money, investors should use the upcoming sharp corrections as opportunities to buy more units.

Sunil Singhania, chief investment officer (CIO) - equities, Reliance Nippon Mutual Fund, says, "In the near term there will be volatility in the markets. However, investors need not panic. They should stay invested and rather use the corrections as opportunities to purchase additional units. Due to the demonetising of Rs 500 and Rs 1000 currency notes, in near term there will be a slowdown in consumption which will be reflected in numbers next month. We have to see how long this impact remains."

According to him, sectors like real estate, discretionary and to some extent rural consumption stories like two-wheelers would be impacted.

Fund managers are also advising investors to invest in fixed income to make the most out of the demonetisation move.

S Naren, ED, ICICI Prudential Mutual Fund, says, "The bold and transformational move by the Indian Government to combat black money related activities has improved the chances of an interest rate cut to earlier than expected. The demonetization step will lead to lot of money coming back into the banking system. There is a possibility of much lower yields in the medium term. Hence, this event has given further strength to our bull call on duration for the next six to twelve months. We recommend investors to invest in fixed income immediately as returns are expected to be front ended."

On the equity investment front he maintains that next few weeks' volatility will be buying opportunities. "The global markets are unsettled on account of the ambiguity surrounding the new economic policies that will be pursued by the winning US Presidential candidate. Hence, we believe Indian equity markets could remain volatile in the next few weeks providing several buying opportunities. Owing to demonetization steps, the beneficial effect of lower interest rates and lower cost of capital will show up in construction and infrastructure projects probably leading to a big capex cycle and economic boom, over the course of next three years. We are now more positive on our equity outlook for next 2-3 years and recommend investors to consider spreading their lump sum investments over the next few weeks across large cap, multi cap and infrastructure funds."

According to Prashant Jain, CIO of HDFC Mutual Fund, "Investors should simply divide their financial wealth in two parts- risk capital which can be kept aside for 5 years or longer and on which an investor can tolerate volatility. This should be invested in 3-5 diversified equity funds that have track record of outperforming the markets over multiple cycles. After this, an investor simply needs to be patient. The longer the holding period of mutual funds or the lesser the churn, the higher should be the wealth created! Equities reward patience and inactivity more than activity and churn. The other part of capital is safe capital - that portion on which an investor does not want to have volatility. This should be invested in one or more of the many fixed income options that are available."

The last two-and-a-half-year period has seen equity segment of the mutual fund industry gaining historic size with total asset under management reaching nearly Rs 5.25 lakh crore. The sector has added nearly 10 million new equity accounts during this period with monthly systematic investment plan (SIP) book reaching Rs 3,500 crore from as low as Rs 900 crore.