Over the long term, equity funds give wealth-generating boost to one’s savings by giving inflation-beating returns, although in the short term they could be volatile.
With the market falling sharply recently, it may be bit of a challenge for new investors who entered the market in last 12 months as they may be experiencing volatility for the first time.
Swati Kulkarni, Executive Vice President and Equity Fund Manager, UTI Mutual Fund feels if investors understood the wealth generation benefits of equity investments over the long term, and also the importance of asset allocation, they will not waver from their financial goal. They will realise that corrections lead to getting more units for the same amount through SIP investment. So, they are averaging the cost at present and when market bounces back their returns will also improve.
After sharp corrections in equity market where do we stand on valuations and earnings?
.What investment strategy have you adopted based on corrections happening now in equity markets?
The portfolio strategies are based on fund manager’s style and objective of the funds so short term fluctuations in equity market doesn’t lead us to change our long term views or positions in the scheme. For example, in UTI Mastershare we follow GARP (Growth at reasonable price style) and invest in companies with competitive franchise.
.What are the steps that investors should take now while reviewing their portfolio?
Over a long term, equity funds give wealth generating boost to one’s savings by generating inflation beating real returns, although in the short term they tend to be volatile. Typically, Indian investors are underinvested in equity funds. What portion of savings can be invested in equity funds depends on one’s ability and willingness to take risk and his/her financial goals.
For short-term financial needs one needs to allocate in liquid funds. Having allocated savings in different asset classes and sub categories, investor should periodically review it i.e. what was the initial allocation and what it is currently.
For example, if one had 60% desired allocation to equity and that has increased to 70% post strong equity performance which may have also elevated the valuations, he/she may like to prune it back to 60%, conversely, fall in equity market makes the valuations cheaper and the allocation to drop below 60% requiring additional investment into equity funds to enhance the allocation back to 60%. Taking help from financial advisors can be a good idea to customise your financial plan and review it from time to time.