Short-term view in equities, equity mutual funds could be a recipe for disaster

Equity mutual funds offer a passive route to invest in stock markets and demand a longer-time horizon for optimum gains. A short-term view can be counterproductive and is often a recipe for disaster — not just for your investment in equity funds but also directly in equities.

Sample this!
Nifty50 declined 750 points or 5.8% in the January-to-March quarter while gaining 1,128 points or 6.7% in the two months starting April 1. The net gains have been just over 420 points or 0.9%.


So if investors took positions during the first quarter they may have booked losses during this period, while those who have taken positions in the last two months, though are on the winning side, do not know which way the stock markets will go from here.

Equity can be volatile and may also lead to significant drawdown (decline from peak investment value) in the short term. Hence, this asset class is apt for creating wealth over a long term, said Alekh Yadav, Head of Investment Products at Sanctum Wealth.

Owing to the constant volatility prevalent in the market, investors are advised to look into equities via passive means and SIPs (Systematic Investment Plans) is one option, Gurmeet Singh Chawla, Director, mastertrust told ET Markets. “For retail investors, SIPs and ETFs might be a good alternative for near-term needs of liquidity but for long-term goals, equity can be a good option,” he said.

While the uncertainty around financial markets does pose a risk to growth, investors can certainly benefit by thinking long term, said Abhishek Dev, Chief Executive Officer and Co-Founder of Epsilon Money Mart.

In a scenario where uncertainty looms, having a blend of growth assets and dividend yield makes sense, Dev said. “A prudent mixture of different asset classes that helps us in reaching our goals and match our risk profile will help,” he added.

Investments with a short-term view, preferably less than 3 years, can be divided into 3 sub-categories, according to Abhishek Dev, Chief Executive Officer and Co-Founder of Epsilon Money Mart.

A conservative investor can look for parking the sum in liquid or short-term funds while those with a balanced profile can take exposure to equities through conservative hybrid funds, Dev said.

“A very aggressive investor can allocate a part of their portfolio, 5-10%, in Peer-to-Peer Lending. While P2P lending comes under RBI’s lens and tends to give 12-14% returns, before plunging investors should know the inside out of these investment avenues as they involve higher risks,” he added.

Constructive research and a keen eye on fundamentals can give profits to investors,Chawla of mastertrust said.

Experts have also advised against timing the markets. Yadav said debt mutual funds with lower duration and high credit risk, bank FDs, select bonds, corporate FDs may be better investment avenues for short-term liquidity needs.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)