Overconfident investors worry mutual fund advisors

As stock market indices continue to record new highs, some mutual fund investors are becoming extra adventurous, say several mutual fund advisors. According to them, these investors continue to chase schemes offering higher returns and they are least bothered about a possible correction in the market.

“In the past, we had to tell investors not to worry about the volatility, but the scenario is opposite this time. I am mostly asking my clients to be a little fearful as a correction may be around the corner,” says Harpreet Singh, a Certified Financial Planner.

Advisors say new investors want to invest only in midcap and smallcap schemes these days because of the exceptional returns given by them. “New investors come to us asking for mid and smallcap schemes. When I tell them about the expected correction, they rubbish it. Some investors want to invest a lumpsum at such a market peak and are not even considering the fact that the market might see a fall,” says Puneet Oberoi, Founder, Excellent Investment Advisors.


These advisors say it is foolish to be fearless and ignore the near-term volatility in the market. “Not being impacted by the volatility and continuing with your investments is great, but chasing returns against your risk appetite and ignoring the fall in a bull market is a dangerous thing to do,” says Harpreet Singh.

Puneet Oberoi says the new investors should stick to balanced funds to start their SIPs. “Investors in general should stay away from small and midcaps schemes since the valuations are very high in the space. I would suggest going for safer products like balanced schemes and large and multicap funds,” Oberoi says.

Most advisors typically argue against investing a lumpsum in equity mutual fund schemes. They are strictly against it now, since the market is hovering around its historic peak. “Investing a lumpsum in equity at this time can be hazardous. I would suggest to go for an STP (Systematic Tranfer Plan) from a liquid fund to a multicap scheme and waiting for a correction to invest on a better opportunity,” says Harpreet Singh.

Also, advisors believe that the existing investors should not try to be adventurous and increase their allocation to risky products. “At this time, I would suggest the investors to stay focused on their existing asset allocation and not be greedy for extra returns,” suggests Puneet Oberoi.