Why You Should Not Avoid Investing in Equity Mutual Funds Now…
Sep 04, 2019

Author: Aditi Murkute

(Image source: Image by mohamed Hassan from Pixabay)

The recent Quarter 1 GDP data revealed that India's economic growth has been the slowest for more than six years, 5% in the June quarter.

The recent slew of announcements by Ms Nirmala Sitharaman to help revive the economy has failed to uphold the investors' sentiment to push the index upward. A few days ago, the finance minister announced several steps to improve India's longer-term growth, but none of these has offered any immediate support. Few of them are:

  1. To merge state-run banks to help spur credit growth,

  2. Ease foreign investment rules,

  3. And give concessions on vehicle purchases.

[Read: How Nirmala Sitharaman's Recent Announcements Impact the Mutual Fund Industry]

The markets continue to be bearish and indices are resisting a spur to scale higher. The small caps and mid-caps have sharply toppled down, and large caps weren't spared either. Though it might seem all gloom heading for doom; well, it is not.

[Read: Why Bet On High Alpha Funds In This Gloomy Market]

The RBI mentioned in its Annual report that this slowdown in economy is cyclical and not structural, "The key question that confronts the Indian economy as it looks ahead to the rest of 2019-20 is: are we dealing with a soft patch, or a cyclical downswing, or a structural slowdown? This will determine the policy responses -  illustratively, a soft patch can be looked through, while a cyclical downswing will warrant counter-cyclical actions in terms of monetary and fiscal policies, but a structural slowdown will need deep-seated reforms."

So, instead of losing your peace of mind when there is a steep fall, consider this time as an opportunity to do value buying for the long-term growth of your wealth. Equity markets are volatile, but if invested for a longer period they can generate inflationary-adjusted returns.

If you look at the following graph, post the budget announcements, the Nifty 50 Index has fallen and trails at 27.5x and the Nifty Midcap250 Index is at 31.4x, offering opportunities for value buying. Even the Smallcap Nifty Index is at 30.6x.

Graph: P/E trails of Indices

(Data as on September 3, 2019)
(Note: Nifty 50 P/E on the LHS and Nifty Midcap 150 P/E on the RHS)
(Source: NSEIndia.com)

It's time to think like successful investors would ... long term and going against the herd. They invest in 'alpha-generating funds' in volatile times for a long investment horizon and see their wealth multiply over time. If you wish to multiply your investment returns in the volatile times through equity mutual funds, build a robust portfolio that will deliver consistent returns.

Typically, you need a multi-cap fund, a mid-cap fund, a small-cap fund, a large & mid-cap fund, and large-cap fund. To mitigate the volatility, you could consider taking the SIP (Systematic Investment Plan) route as opposed to a lump sum investment while you endeavour to compound your wealth along with rupee cost averaging benefit.

However, the crucial part is selecting the right fund because not every fund may perform consistently. So, select the worthy schemes based on the Qualitative and Quantitative parameters, which include the funds' past outperformance across periods and market cycles in comparison with the benchmark and its category peers, the fund managers' conviction in the approach and their experience with prudent risk management systems in place.

Like the PersonalFN's research service that helps in selecting worthy schemes- equity and debt funds. Based on a SMART score matrix, (Systems and Process, Market cycle performance, Asset management style, Risk-reward ratios and Performance Track Record), PersonalFN has created a strategic research-driven report service that focuses on consistent high returns at lower costs.

Each fund recommended under FundSelect goes through our stringent process where each fund is selected on quantitative as well as qualitative parameters.

[Read: How To Check If A Mutual Fund Scheme Is A Consistent Performer Or Not]

If you are wondering is it possible to consistently outperform the markets or not in current times ...

The Modi 2.0 government is all set to increase the governmental capital expenditure and spending on infrastructure growth in the next few years.

India has set a goal of making India a USD 5-trillion economy by 2024-25 and has even unveiled a blueprint in its latest economic survey for 2018-19.

The monetary policy committee cut the policy repo rate by 35 basis points in Aug 2019. Forex operations by the Reserve Bank and large currency expansion exacerbated the pressure on system-level liquidity, warranting active liquidity management. Banks' deposit and lending rates reflected the movements in the policy repo rate, though transmission remained uneven across sectors.

Inflationary pressures emanating from volatile international crude oil prices, and currency depreciation in the first half of the year, cooled down markedly in the second half, driven down by moderation in crude oil prices and a collapse in food prices. CPI inflation averaged 3.4 percent in 2018-19; 4.3 percent in the first half and 2.5 percent in the second half. These diverse movements reflected in the voting pattern of the monetary policy committee (MPC). The MPC also decided to maintain the accommodative stance of monetary policy.

These decisions align to achieve the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 per cent while supporting growth.

So, India is taking measures to revive its economic growth. Utilise this opportunity to boost your mutual fund portfolio returns by adding worthy fund in your investment bouquet by considering your own investment time horizon and risk appetite.

Editor's Note: If you are looking for funds that can create wealth for you but aren't sure which ones to pick, consider  PersonalFN's flagship Unbiased Mutual Fund Research service- Fundselect.

It is a credible research service that provides insightful guidance and recommendations on equity funds and debt schemes.

​If you are serious about investing in rewarding mutual fund schemes, subscribe to PersonalFN's flagship mutual fund research service FundSelect today!

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