Why fund managers are cautioning investors against lumpsum investments

As the US elections and the US central bank meet is near, fund managers are cautious of lump-sum investments in equity MF schemes

With upcoming global events like the US  elections and the US central bank meeting on setting borrowing rate, fund managers are cautioning investors against lump-sum 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 seen reduction in lump-sum investments. However, players believe there could be an uptick, particularly from those who had pulled out their investments earlier this year.

"Though the medium-term to long-term outlook looks decent, there could be short-term pain points, given the upcoming global events. We expect volatility during such times. Given this, at the current juncture, lump-sum 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, Birla Sun Life MF.

 

So far in the current financial year (till September), inflows in the equity segment (diversified and tax-saving schemes) have been Rs 22,200 crore. The same period last year had seen inflows worth Rs 53,700 crore. Though total sales have been robust so far, they have been countered by strong withdrawals, putting pressure on the net inflow of money in equity funds. A net amount of money is the amount that remains when nothing more is to be taken away.

Amit Nigam, equity head at Peerless MF, says, "Though it is true the impact of volatility in stocks wears down over time, it is equally true the short-term impact of volatility can cause serious concerns in the minds of even the most long-term investors. SIPs are recommended in equity markets as they not only cushion the impact of volatility but bring discipline towards investments. In case one wishes to put in a lump sum, 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 advise schemes designed to benefit from volatility. Manish Gunwani, deputy CIO at India's largest fund house, ICICI Prudential MF, says: "Investors can go for lump-sum 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, SIPs are preferred, he says.

Dynamic asset allocation equity schemes have been gaining traction in the past year. Such funds have a mix of debt and equity, depending on the market situation. They are designed to offer moderate returns, 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.