Is It A Good Time To Invest In Mutual Funds?

The volatility in the equity market has deterred many investors from adding in fresh money into mutual funds. DSIJ explains, how and where to invest in these times.

The year 2017 was a great year for equity investors. During the year, investors witnessed frontline indices touching life-time highs almost every month, with few exceptions. Such rise in equity prices generated tremendous returns for mutual fund investors who had stuck to equity funds. The impressive rise in the equity prices and indices attracted many investors to the equity funds.

The skyrocketing equity market motivates the new and existing investors alike to invest in equity mutual funds. This is reflected in the rise in the assets under management (AUMs) of the domestic mutual fund industry. It has increased by 32.4 percent in 2017. At the start of the year, the total AUMs stood at Rs 17.06 lakh crore, and by the end of 2017, it stood at Rs 22.6 lakh crore. The year of 2018 started off well, with the equity markets touching their life-time highs. Nevertheless, in the Union budget 2018, the Government of India reintroduced the long-term capital gain (LTCG) tax on equity investments, along with the dividend distribution tax (DDT) on mutual funds. These changes spooked the markets. What also played the spoilsport were the weak global cues along with the geopolitical tensions.

This has made the markets volatile and the worst-hit were the small-cap and mid-cap stocks and their benchmark indices tumbled more than 10% year till date. Such a fall has curtailed the returns of the investors and created a worry in their minds about their own investments. There is also evidence which suggests that new investors are now opting for more traditional investment options such as fixed deposits due to the rising interest rate scenario.

We feel this may be a knee-jerk reaction by the investors on account of the sudden fall in the equity markets. We believe that this is not a right time to dump your investments and let the volatile markets force you to take wrong investment decision.

The history and what it teaches