Avoid lumpsum bets, stay with SIP, say fund managers

The five per cent fall in share market prices over the past fortnight is not enough reason to make big lumpsum investments, say mutual fund (MF) managers.

One should continue through the Systematic Investment Plan (SIP) route, as it is impossible to time the market, they add.

Most fund managers have a cautious stand, as the earlier sharp rally this year, without earnings support, has made valuations expensive. Stocks continue to remain expensive even after the latest correction, they add.

In three years, domestic investors have pumped Rs 3.45 lakh crore in equity oriented schemes. Further, equity schemes are getting incremental flow of Rs 10,000 crore every month; about Rs 5,000 crore is through the SIP route.

With sluggish economic growth and lack of private sector investment, a sharp revival in earnings could be several quarters away, say money managers. Navneet Munot, chief investment officer (CIO) of SBI MF, says: "Given the current valuations, investors need to moderate their return expectations. Investors should continue with SIP, as this mode of investment is more of a discipline and helps them take advantage of market volatility. At this stage, lumpsum investment should depend on risk appetite, asset allocations and investment horizon."

Annualised return for the past three years are in the high teens for most equity schemes. Money managers say this could be difficult to sustain.

Mahesh Patil, co-CIO of Aditya Birla Sun Life Mutual Fund, says: "At the current stage, it may not be advisable for investors to put lumpsum money in stocks. Investors must tone down their return expectations. If there is a correction of, say, around 10 per cent, they may use such opportunities to make additional investments. Meanwhile, balanced funds with a dynamic asset allocation feature should be increasingly looked at. However, those with SIP should continue, not stop, to reap the benefits of volatility."

A lot of fund managers believe the markets could slip further from current levels and investors should brace for volatility. "The benefits from various government policies should have yielded results by now. However, the wait is getting more prolonged. It won't be surprising if the Nifty (the National Stock Exchange's benchmark index) drops to 9,000 levels. If that happens, it remains to be seen if investors panic or continue with monthly investments," said a top fund manager, asking not to be named.

He says investors ought to prefer large-cap stocks over mid-caps and small-caps.

Assets under management (in the MF sector add now to about Rs 20 lakh crore. Of this, equity is a little over Rs 7 lakh crore.