Personal Finance

What should new mutual fund investors do in a volatile market?


Many mutual fund investors, especially the new ones, are nervous about their investments as the markets are witnessing strong bouts of volatility, say mutual fund investors.

New investors look nervous as the market is witnessing high volatility,” said Juzer Gabajiwala, Director, Ventura Securities.

“Volatility is going to be there in the market. At present, there is a high level of volatility. New mutual fund investors should understand that they are investing for the long term. They have to accept volatility and invest regularly,” Gabajiwala said.

Lofty valuations, higher inflation, the anticipation of rate hikes and reports of the resurgence of Covid-19 cases in the US and some parts of Europe have punctured the market sentiment.

Market benchmark Nifty 50 is now more than 6% down from its all-time high of 18,604 that it hit on October 19 this year.

According to mutual fund advisors, the market is likely to remain volatile in the near term. Investors, especially new investors, should tread carefully.

“Global inflation risk is for real and any spike in bond yields will have an impact on equity valuations globally as well as in emerging markets. To take care of these risks, asset allocation for first-time investors becomes extremely important,” said Rahul Singh, CIO-Equities, Tata Mutual Fund.

Many fund managers and advisors are recommending Balanced Advantage Funds or Dynamic Asset Allocation funds to new equity mutual fund investors. This category of funds has offered 20.07% returns in the last one year.

“Overall allocation between debt and equity adjusting for the individual risk profile will be key. In addition, first-time investors should evaluate balanced advantage funds as a suitable scheme to enter the markets at this stage and can form the core part of their asset allocation,” said Singh.

Fund managers also underscore that investment in equity mutual funds is usually done for the long term, so new mutual fund investors can use such opportunities to increase exposure in the equity segment. New investors can buy funds focussed on bluechip stocks.

“Mutual fund investors can take this correction as an opportunity to enter for the long term. Buying funds focussed on bluechip stocks would be a good idea to start with for new investors,” said Ruchit Jain, Trading Strategist, 5paisa.com.

“First-time investors should look at starting with SIPs. If an investor wants to invest at one go at this juncture, he can look at investing in balanced advantage funds. If an investor is already invested, especially in small cap funds, he can consider partial exit as they have had a very good run up,” said Gabajiwala.



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