Should You Rethink Mutual Fund Investments After The Market crash?

Posted By:
Subscribe to GoodReturns

The Nifty has crashed a good 10 per cent, since Jan, when it hit a peak of more than 11,000 points. Some SIP investments have now turned negative in the last 1 year. The returns of mutual fund investments are pretty poor if you take returns of the last 3 years.

Should You Rethink Mutual Fund Investments After The Market crash?
For example, the returns from HDFC Equity one of the largest equity mutual funds is just 7.68 per cent on an average each year for the last 3 years and the 1 year return is about 9.62 per cent. However, the returns over 5 years has been decent at 16 per cent on an average each year.

On the other hand another big equity fund, Aditya Birla Sunlife Frontline Equity, the returns has been 8.32 per cent for one year, and 7.96 for three years and over 5 years it has been close to 16 per cent.

Check latest mutual fund dividends here

The story is the same for most of the large top cap equity schemes, while the small and midcaps have performed slightly better.

The problem right now is that in the more short term like 1 and 3 years, the returns have been just about good. Over the 5 years, the returns have been good because the markets had started factoring in a Modi will in 2014 and had hence rallied - 5 years ago in 2013.

The problem right now for investing lumpsum in the markets through mutual funds is plenty. Just as the markets rallied 5 years ago ahead of Modi being elected, there are worries that the 2019 elections would not be easy for him.

Following the losses in Gorakhpur and Phulpur for the BJP, the markets have crashed, as worries have mounted that the BJP would face a serious challenge in winning the 2019 elections.

So, the point remains that if you are going to invest a lumpsum in the markets for the next one year, chances are you may end-up with losses. It is hence advisable to invest with a time frame of 3 to 5 years, if you really want to make decent money.

Again, individuals may agree, that investing lumpsum means you need to understand that you must invest at lower levels. The only way to make money is to invest at low levels and sell at high levels.

Should you buy into equity mutual funds now?

We believe that if earnings of Sensex companies grows by 20 per cent in the next one year (2018-19), the Sensex p/e would be around 18 times one year forward earnings. This is not very low, given the historical average of 14 to 17 times.

Hence, it would be advisable to wait for another 10 per cent dip in the Sensex, if you really want to invest large sums of money. The market even at these levels is slightly overpriced, given the fact that earnings have hardly grown in the last several quarters. The policies in the US are also volatile and unpredictable, which could weigh on the global markets. Hence, at these levels, it is better to be a little more cautious.

As far as SIPs are concerned, since averaging comes into play, it is a different balll game altogether. 

GoodReturns.in

Read more about: mutual funds
Company Search
Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

Find IFSC