RBI governor

Should mutual fund investors worry about Patel resignation, election results?

India News
The unexpected resignation of RBI governor and setback for BJP in the state elections, coupled with worrying overseas cues, are likely to keep the stock market in tenterhooks in the coming days. As expected, S&P BSE Sensex opened 500 points down. The benchmark index regained some lost ground later. However, the sentiment may be hit adversely ahead of the parliamentary elections scheduled next year, say stock market pundits.

Should mutual fund investors be worried?

Mutual fund managers and advisors believe that investors should not change their financial plans based on adverse news suddenly flooding the stock market. They believe that investors should stick to their investment plans irrespective of the gloomy scenario as there is no change in the rationale behind investing in equity mutual fund schemes to achieve their long-term financial goals.

That means investors should remind themselves that they are in for a long haul and continue with their original investment plan. Many advisors point out that investors with an investment horizon of 15 or 20 years would find these instances as small blips when they look back later.

Some mutual fund advisors believe that investors with surplus cash can use the bad phases ahead of the parliamentary elections by investing whenever there is a major correction in the market. Some advisors are asking their clients to invest if there is a five per cent correction in the market.

However, regular investors should keep in mind that this just a tactical investment to enhance returns, and it should not alter the original investment plan in any manner.

However, mutual fund advisors ask investors to be cautious ahead of the general elections and desist from any misadventure in the stock market. They believe that the market could be extremely volatile before the election and it may turn even more volatile if the election results do not go in line with the expectations.

Finally, what should mutual fund investors do? As said before, if you have a financial plan, do not change it. That is, if you are supposed to invest in a multicap scheme or midcap scheme, stick to the plan.

However, new investors should play it extremely safe and stay away from risky investments like midcap and smallcap schemes. This is mainly because the market punishes mid-sized and smaller companies when the going gets tough. Similarly, new investors should also avoid risky sectoral schemes, advisors say.

This is the reason why many advisors have been asking their new clients to stick to safer avenues like aggressive hybrid schemes and largecap schemes. Aggressive hybrid schemes invest 65-80 per cent in equity and the rest of the corpus in debt – they are relatively less volatile than pure equity mutual fund schemes that invest the entire corpus in stocks. Since largecap mutual fund schemes invest in large companies they would be least impacted by the turmoil in the market, say advisors.

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