U.S. Elections: What should retail equity mutual fund investors do

One should proceed with SIP’s as predicting market motion will not be the concept of funding through mutual funds.

The U.S. Presidential election is across the nook and the world is ready for the result with bated breath. The contest between Donald Trump and Joe Biden is taken into account to be a detailed one and the election hangover is anticipated to stretch well-into few extra weeks after the outcomes. Predictions can go haywire as uncertainty stays excessive. But then, one place the place the prediction of election outcomes has a giant function to play is the stock market. Over the previous few weeks, the main US stock market indices witnessed enormous volatility. “Contrary to what most market gurus and economists would have you believe, the US President has little control over what the financial markets do. Trying to forecast whether a certain US President will cause a boom or bust in the stock market during their term is pure speculation,” says Rishad Manekia, Founder and MD, Kairos Capital Private Limited, a Mumbai-based monetary planning agency.

The retail equity mutual fund investors who noticed a serious dip of their NAVs throughout the March 2020 meltdown are additionally a involved lot. Equity values have nearly rebounded to pre-covid ranges however sentiments usually are not wanting promising amidst US elections and financial outlook. Should Indian mutual fund investor fear? “The US is the world’s largest economy, and in the past, we have witnessed the impact of US election results on the markets across the world, including India. In the short-term, US presidential elections may create volatility in the global markets, including the Indian market. But these are short-term effects and an investor with a long-term perspective should see it as an opportunity to accumulate units, if there is a sharp fall in the stock markets,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a monetary planning agency which caters solely to armed forces officers and their households.

Even if MF investors give the US elections a go, there is probably not a lot to lose particularly when they’re meant for long run objectives. “Considering the elections markets could be extremely volatile but at the same time money which is already invested via equity mutual funds should continue to hold their positions as elections overhang will be for a short span of time and investments made for long term will not be severely impacted due to which the SIP’s should also be continued. Investors with a cautious approach can opt to hedge their portfolio with the help of options which would reduce the risk for the amount invested,” says Nitin Shahi, Executive Director, Findoc Financial Services Group

More than attempting to time the market, revisiting asset-allocation and one’s monetary plan could assist investors in these occasions. “If an investor tries to time the market, he will most likely hamper his returns because he will not be able to perfectly predict the market high or the market low and along the way will incur significant costs due to trading and taxes. Time in the market matters far more than timing the market and, therefore, investors should keep their financial goals in mind while investing and stick to an appropriate asset allocation with a mix of equities, fixed income and other assets,” says Rishad Manekia, Founder and MD, Kairos Capital Private Limited, a Mumbai-based monetary planning agency.

Higher valuations

Not all investors may very well be snug to speculate particularly a lump sum within the present market ranges. “This would not be the best time to invest lump-sum amounts in mutual funds as the market has rallied more than 50% in the last 6 months and Indian markets are trading at record P/E levels of 34.50. Moreover, market consolidation or a correction is due as per the current scenario. On the other hand, one should continue with SIP’s as predicting market movement is not the idea of investment via mutual funds,” says Shahi.

For those that nonetheless wish to keep on the sidelines and watch for the best alternative, there are methods to go about it. “In case a lumpsum amount has to be invested, one may invest it in a liquid fund and opt for a systematic transfer plan (STP) to enter the equity market. Hence, using a STP, we again make a bulk out into a SIP kind of investment while still earning the gains of a liquid fund,” says Col Govila (Retd).

Even if there’s a fall within the market, the long run MF investors can utilise the alternatives thrown up by low ranges. The idea of rupee price averaging works finest when the markets fall and go up over the long run. In truth, one could even decide to extend allocation throughout large market strikes in both path. “I suggest dynamic SIP allocations. When the market goes up reduce the quantum and when markets go down increase the same. There will be volatility in market post-2020. One can take advantage of such volatility by actively managing the quantum of investment,” says Vivek Bajaj, Co founder StockEdge.

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