Is this a good time to invest in equity funds?

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Mahmood Basha – Head Sales, Baroda Pioneer Asset Management Company Limited.

Equity markets have been on a roll since 2014 shattering level after level. There are many fundamental reasons for the surge in equity markets:

  1. Macroeconomic fundamentals like economic growth, fiscal discipline, current account balance, continue to improve
  2. Rollout of GST, banking reforms and robust bankruptcy laws
  3. Political stability which could see consistency in the reform process
  4. Stability in policies is likely to have long-term impact on earnings recovery
  5. Rupee continues to be stable

There are a large number of positives coinciding and markets are compelled to take note of the same.

In our view, this is just the time for investors to look at equities for long-term wealth creation.

All assets undergo a cycle. Domestic equities hit a trough post-2008 in the aftermath of the credit crisis. They took their time to come out of the rough patch and have been on the mend for the past few years.

However, Indian equities haven’t peaked. If fundamentals continue to improve, companies will be major beneficiaries and this is likely to reflect in stock prices over the long term.

Indian investors have shown increasing signs of maturity with a good understanding of market cycles and the other cycle of fear and greed which moves in tandem with the former.

Estimates by AMFI indicate that investors have been buying mutual funds actively over the months – this at a time when stock market indices are at all-time highs. In 2017, we saw the QAUMs (Quarterly assets under management) of the mutual fund industry surge by nearly 32% Year-on-Year to Rs 22.36 lakh crores at December-end (Source: AMFI). This was thanks to the strong performance of equity markets combined with softening interest rates on traditional products viz. PPF, NSC.

This shows that investors are already allocating a larger share of their savings to equity mutual funds and the numbers indicate that they are going the SIP way.

Our advice to equity investors is to keep in mind some basic rules of investing:

  1. Some of the most successful investors like Sir John Templeton and Benjamin Graham urge investors to buy equities when most people are pessimistic and sell when they are overly optimistic.
  2. Invest regularly in equities regardless of market levels. Studies have pointed out that investing regularly in equities through an SIP is more effective than investing selectively in a bid to time the market. In the long run it is not about timing the market; it is time in the market.
  3. Equity is for long-term investors. So temporary market shifts and trends must be ignored. Invest diligently in the financial plan drafted by your financial planner. Over long-term, equities are likely to outperform other asset classes, something we have seen already. We have also observed that risk (read as volatility or risk of negative returns) associated with equity comes down over a period of long term. Following table summarizes the performance NIFTY 50 Index between 2009-18.

Past performance is no guarantee of future results

So whether markets are rising or are in correction mode, don’t let your foot off the pedal. Keep adding to your mutual fund investments as dictated by your investment plan.

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