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Industry data suggests that investors redeem after markets fall and vice-versa, which results in inferior returns. Data also suggests that 63% of mutual fund units were redeemed within 2 years in the financial year 2023. Moreover, only 11% of SIP accounts remain active for more than 5 years.
Commenting on these figures, Union MF said, “Enhanced clarity on market valuations could improve returns for investors.” In this regard, the fund house launched the fair value spectrum.
Sharing the rationale behind introducing the fair value spectrum, Harshad Patwardhan, CIO, Union MF said, “We aim to strengthen our communication to investors to deliver better investor experience, and today’s launch of fair value spectrum for Nifty-50 Index is a small step in that direction.”
What is The Fair Value Spectrum?
Explaining the spectrum, Hardick Bora, Co-Head of Equity, Union MF said that it depicts the fund house’s interpretation of market attractiveness and provides an outlook on the equity market. “Since investment decisions cannot be based on point estimates, this tool presents the ranges of attractiveness and where the current market levels are”, he said.
The fair value spectrum comprises valuation levels of the Nifty 50 Index which is divided into five zones of attractiveness.
What is the current reading?
Describing the current reading of the Spectrum, Sanjay Bembalkar, Co-Head of Equity, Union MF said, “Markets are currently in fair zone. Our analysis over the last 10 years reveals that markets have been in this zone for approximately 45% of times. At such junctures, risk-reward trade-off is balanced.”
He added, “Hence, we recommend staggered allocations over 3 to 6 months. The decision on market capitalization selection should be based on individual investor’s risk appetite.”
