The rising uncertainties have raised many questions in the minds of MFDs like:
- Will the market correct soon?
- Which funds to recommend?
- Should I suggest to my clients to rebalance?
To help MFDs decode equities better, Nilesh Shetty - Co Fund Manager - Equity, Quantum MF addressed some of the most common investor queries. In conversation with Nishant Patnaik, Associate Editor, Cafemutual, Nilesh shared with us some simple & effective tips to simplify equity investing.
Here are the key takeaways from the session.
Outlook on equity market
The Indian markets were on the downside in the pre-covid era and the pandemic prolonged the downside further. In addition to the rising demand, the current run-up is also a natural upside following the previous down cycle.
Demand recovered during the festive season and if this rebound continues & triggers an upcycle, a 10% to 15% CAGR can be expected over the next three to five years. Overall, returns from equity funds will be comparatively higher than other asset classes like debt funds, real estate and gold.
Understanding equities better
Look at the long-term track record and returns in comparison to other asset classes to understand equities better.
While choosing an equity fund, MFDs/RIAs must see if the investment style of fund houses matches their style. They must also keep a track of changes taking place w.r.t earning cycle, liquidity and political environment to make a reasonable analysis of the market. Remember to introspect your own views to make unbiased recommendations.
Staying invested vs redemption
Equity investors must hold a time horizon of at least 5 years. The longer they stay invested, the lower is the probability of making losses. Further, funds’ performance must be viewed for a particular period rather than a single point in time. Comparing returns at a single point in time can give a completely different picture especially while comparing returns from two contrast periods i.e. boom and recession.
Redemption must be a function of long term goals. Investors can redeem once they have accumulated the desired corpus. At such times, analysing existing market conditions becomes immaterial.
Simplifying equity investing: Tips
- A simple diversified portfolio with a long term view can help to achieve financial goals
- MFDs should avoid recommending sectoral funds due to concentration risk
- Investors wanting to explore value funds must limit their exposure to 15% to 20% of the total portfolio
- Investment of incremental lump sum flows is a function of time horizon. A mix of debt is suitable for short rems goals while diversified equity fund is good for the period over 5 years
- Investors with no existing equity exposure wanting to invest their incremental flows can consider allocating 75% today and staggering the balance amount over two years. In other cases, it is advisable to put the entire amount in a staggered manner
- Multi asset funds have the potential of generating better returns over time as against bank FDs. Retirees can consider investing in such funds and register SWP for availing periodic withdrawals
