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How equity mutual fund investors can use Ukraine selloff to their advantage

Investors can consider investing in scheme categories like dynamic asset allocation, multi asset to name a few, ICICI Prudential Mutual Fund expert believes. (MINT)Premium
Investors can consider investing in scheme categories like dynamic asset allocation, multi asset to name a few, ICICI Prudential Mutual Fund expert believes. (MINT)

  • Given the recent geopolitical uncertainty and potential rate hike measures by US Fed and other global central banks in the future, we remain cautious in the short to medium term, say ICICI Prudential Mutual Fund expert 

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In the wake of Russia-Ukraine crisis, global equity markets under heavy selloff stress. However, the recent selloff is seen as an opportunity by positional investors and various mutual fund houses as the equity market is providing an opportunity to enter at discounted levels. ICICI Prudential fund managers believe that both equity market and equity mutual funds are expected to give stellar return in long-term. They believe that current Russia-Ukraine war has provided an opportunity to long-term mutual fund investors as markets will rebound strongly post-ceasefire in Russia-Ukraine war.

In an interaction with Livemint, Chintan Haria, Head Product & Strategy, ICICI Prudential Mutual Fund further explained why he thinks long-term equity exposure is better than mid or small term.

Edited excerpts:

FII's positional holding in Nifty 500 has come below 2012 levels. Is it opportune for lump sum equity mutual fund investment?

Given the recent geo-political uncertainty and potential rate hike measures by US Fed and other global central banks in the future, we remain cautious in the short to medium term. However, from a long term perspective we are very positive owing to the various reform initiatives such as RERA, GST, Insolvency & Bankruptcy Code, China + 1 strategy, reduction in corporate tax rate etc. carried out by the Government coupled with a strong pipeline of infrastructure related initiatives lined up over the next several years. Also, unlike the US, India’s corporate profit to GDP remains low and hence in cycle terms, India is far from peak both in terms of corporate profits and valuations. Owing to these factors, we believe Indian business cycle is set to improve further.

Also read: Top fund manager on what MF investors should do amid Ukraine selloff

Despite equity valuation correcting from record highs, it is not as cheap as it was during March 2020. Hence we believe the optimal approach is to stagger one’s investment through SIPS or investing lump sum in balanced advantage and multi-asset strategies.

In the wake of Russia-Ukraine war, is it opportune to enhance large-cap equity exposure?

In each of the last six months FPIs have been net sellers of Indian equities and have thus far sold $15.41 billion. This is the longest FPI selling streak since 2008. It is a known fact that FPIs largely invest in large cap/blue chip stocks. So, post this selling large caps seem to be better placed than mid and small caps.

What is your suggestion to a fresh equity mutual fund investor in this geopolitics-hit equity market?

Equity markets in our view may do well over long term but we remain cautious over short to medium term prospects. Rather than focusing on a single asset class like equities; investors should look at a combination of other assets including debt, gold, real estate etc. 

Also read: Calm before the storm? What Morgan Stanley's Ridham Desai says on stock market correction

So, investors can consider investing in scheme categories like dynamic asset allocation, multi asset to name a few. The advantage of investing in a category like these is that investors get exposure to several asset classes within a single fund. For equity only investments, investors can initiate SIP in categories like value, flexicap to name a few.

Gold has emerged as an investor safe haven in the ongoing Ukraine crisis. Is it wise to increase exposure in paper gold and electronic gold at the cost of debt mutual funds?

Gold and debt are two different asset classes with each having its distinct role in a portfolio. While gold acts as a hedge against inflation and volatility in financial assets, debt renders the much need stability to the portfolio. So, do not invest into one asset class leaving out the other. Investors contemplating increase in their allocation towards gold in their portfolio can consider investing in Gold ETF or Gold Fund of Fund. The general principle is that one can allocate ~10-15% of a portfolio towards gold. The optimal allocation in one’s portfolio can be decided on consultation with a financial advisor.

Also read: Zerodha co-founder's advice to investors: Wait, don't buy this dip yet

We believe gold ETFs offer some distinct advantages. To begin with, an investor need not worry about storage and theft as it is held in demat form, the cost of acquisition is low given the absence of making charges and other related expenses. There is absolute flexibility when it comes to buying and selling as gold ETFs are listed on the exchanges. One can carry out a transaction at point in time of the trading hours. Also, one need not wait to accumulate substantial sum of money to initiate an investment as investors can start an SIP with as low as Rs. 1,000 every month. This will enable investors to collect gold units over a period of time and build on their portfolio allocation.

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