'It is time to restart your SIP,' says DP Singh of SBI Mutual Fund2 min read . Updated: 14 Oct 2020, 09:54 AM IST
'Waiting on the sidelines looking for the right opportunity may make you miss the wealth-creation bus!'
By D P Singh
This year has been unprecedented to say the least. Even before the pandemic wreaked havoc in markets and economies, there was the shocking drop in oil prices to near negative levels. Then came Covid-19 and the economic lockdown across the world resulting in halt of business activities and loss of jobs and income. Geopolitical tensions between nations aside, we now have the US elections coming up during one of the most decisive periods in history. It won’t be an exaggeration to then say that the volatility, that has gripped markets since March 2020, will likely be here for some more time to come.
Fortunately, equity markets have recovered from their March-lows with the BSE Sensex back at levels seen pre-pandemic. The RBI, for its part, has been implementing measures to keep interest rates low. However, financial markets are still on tenterhooks and unfortunately, it will be a while before we see a more predictable pattern in the market.
For investors, this has not been an easy period. Many investors are yet to start their investment journey as fear of the volatility has overshadowed the opportunities present for wealth creation. Those looking to start their investment journey should not get overly concerned about the short-term direction of the financial markets or get bogged down by economic uncertainty. Waiting on the sidelines looking for the right opportunity may make you miss the wealth-creation bus!
Mutual funds for different market scenarios
Today, the mutual fund industry has varied financial solutions that range across asset classes, risk profiles and time horizons to not only suit investor needs but help investors tide over different market conditions. New investors concerned about heightened volatility in equity markets could consider large cap equity schemes or equity-oriented schemes that at present have a large-cap bias in their portfolio as large cap stocks tend to be relatively less volatile as compared to mid and small-cap stocks. Cautious investors could look at aggressive hybrid funds which have a higher equity bias to capture the opportunity in equities. The balance is invested in debt which acts as a cushion against any potential downside risks in equities.
From among debt funds, investors could consider looking at medium-duration funds with a high-quality portfolio as rates are expected to remain subdued. Investors looking for short-term parking of funds could consider money market funds.
Asset allocation is key
A good investment strategy includes diversification of portfolio to maintain an appropriate asset class mix. Under current market conditions, when market direction and events governing it are on an unpredictable trajectory, investors should look at investing across asset classes to balance the overall portfolio risk. This applied for both new and existing investors.
Additionally, existing investors in the current market scenario should stay away from taking hasty decisions by staying committed to their investments. Those investors who may have stopped their SIPs earlier this year should restart their SIPs. Also, it is of utmost importance for investors to review their portfolio asset allocation mix as investors’ exposure is still skewed towards equity funds while participation in debt funds has still not seen a significant push. As a last point, I would urge investors to start investing because if there is one thing this pandemic has taught us then it is the value of being financially prepared.
(The author is Chief Business Officer, SBI Mutual Fund. Views are his own.)