“The best argument for mutual funds is that they offer safety and diversification. But they don’t necessarily offer safety and diversification.” -Ron Chernow
In my last post I stressed on the growing need for a sound financial research or background check before investing in equities or mutual funds. Markets are not performing quite well over the last few months which has a direct impact on your mutual fund returns. But does that direction us to withdraw or make an exit from our respective SIP’s?
The answer is a strict NO.
For mutual fund investors it’s a hard-know fact that one can reap the benefits of acquiring higher units if there’s a dip or sharp plunge surrounding stocks which ensures higher returns in future. So for ex, you have an SIP of Rs.1000/month & in the second month itself the portfolio showed a downturn i.e units getting averaged out at Rs. 10 whereas earlier they were issued at Rs. 12.
That signifies a rise in the number of units been added from the entire corpus amount (total AUM ). Here I am not going in-depth of NAV and it’s calculation as I just wanted to highlight the advantage of markets not doing well. When the markets are edged better in the future on per-unit basis your returns would be higher.
Not scummbing to technicalities and concentrating on macros here, Mid-caps particularly are soaring in terms of return. As we know they involve higher risk owing to increased returns and being priced quite moderately with respect to their bluechip counterparts. Going in for small or mid-cap funds could be beneficial in the long run but one needs to search well for a diversified and well kept fund initially. Funds with fundamentally strong scripts & an active fund manager would ensure that you get entertained by the chaos surrounding the market currently & surpass the negatives with returns exceeding your expectations. Markets to some extent is looking a bit bleak with a bearish trend hovering over significantly since last few quarters.
Cyclical stocks are doing probably well with government interventions & infra projects lined up. We can expect the trend to linger for next quarter or so & possibly a recovery would be seen after that. Seeking good news we all can stay safely invested in mutual funds bearing fruits in the years to come.