Why Investing Lumpum In Equity Mutual Funds Maybe Risky Now?

Posted By:
Subscribe to GoodReturns
For Quick Alerts
For Daily Alerts

    While it is always difficult to predict the direction of the markets, what one does know is that at higher levels, the risk to reward ratio begins to turn unfavourable. The Sensex is trading at 23 times trailing earnings and this most analysts have termed as "frothy". The historical average for the Sensex has been 17 times, which means markets are expensive.

    Check equity mutual fund dividends here

    Why Investing Lumpum In Equity Mutual Funds Maybe Risky Now?
    In the past one year, many equity mutual funds have given return ranging from 14 to 20 per cent. Would they be able to match that in the next one year? The answer is probably "no" because of rich valuations as mentioned above.

    Having said that the better proposition would be the SIP route, as it works on the basis of averages rather than lumpsum investments. In case you want to invest large amounts into equity mutual funds it is best to wait for some decent correction. Markets do not always go up oneway and there are times when they are definitely likely to fall. At such times it would be a good opportunity to invest larger amounts.

    Already we are seeing very large amounts of cash pouring into the markets from mutual funds and this is one reason to drive the markets. However, at the slightest hints of a collapse in the markets there could be swift withdrawals from mutual funds, aggravating the situation.

    Caution is hence advised in direct equity investments and also equity mutual funds. One can move some profits from equity mutual funds to debt funds and return back when markets drop sharply.


    Read more about: mutual funds
    Story first published: Thursday, August 17, 2017, 9:00 [IST]
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    Get Latest News alerts from Goodreturns

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more