Effect of mutual funds on stock market

Effect of mutual funds on stock market

Posted: fire2186 Date: 11.06.2017

Never miss a great news story! Get instant notifications from Economic Times Allow Not now. Choose your reason below and click on the Report button. This will alert our moderators to take action. Get instant notifications from Economic Times Allow Not now You can switch off notifications anytime using browser settings.

ET APPS ET Android App ET iPhone App ET iPad App ET Wealth Android App ET Blackberry App ET Nokia App ET Markets Android App ET Markets iPhone App ET Money Android App. FOLLOW US FACEBOOK TWITTER YOUTUBE LINKEDIN GOOGLE PLUS RSS. LATEST NEWS Starting a business down to 5 processes: Theresa May vows to listen harder on Brexit.

Home Markets News Industry Small Biz Politics Wealth MF Tech. Jobs Opinion Blogs NRI Magazines Slideshows ET NOW ET Speed ET Portfolio. Real Estate RERA and You. Calculators IFSC Bank Code New Invoice Generator EPF Calculator House Property Income HRA Calculator Sukanya Samriddhi Calculator Education Loan Calculator Car Loan Calculator Home Loan Calculator Personal Loan Calculator Risk Tolerance Calculator Financial Fitness Calculator Tax Impact Calculator Homeloan Refinance Calculator Retirement Savings Calculator.

NIFTY 50 9, Select Portfolio and Asset Combination for Display on Market Band. Download ET MARKETS APP. Drag according to your convenience. What course will the market take and how long before it takes a turn again is not something any investor has ever been able to figure out with authority.

An investor has to have a plan in place and more importantly stick with it in spite of the changing market situations.

effect of mutual funds on stock market

Events come and go, but taking a long term view is a safer bet. Unless the economy is in a bad shape or facing recessionary conditions, staying put in the market makes sense. With enough liquidity to support the market, the indices are nearing all-time high levels. Last month September , the total market valuation of BSE-listed companies surged to an all-time high of over Rs lakh crore. When the BSE Index hit a high of 9,, which was just 1 per cent away from the all-time high of 9, hit on March 4, , voices of a correction started emerging.

With the inflation still untamed and earnings not up to the mark in previous quarters, many investors may not seem comfortable with the high valuation of some liquid and active stocks.

Also, the 2nd quarter earnings season may not throw any healthy surprises. The impending Fed rate hike, the Brexit effect and the uncertain US elections may add to the volatility. Last week, Finance Minister Arun Jaitley had remarked that the US presidential election is a worrisome situation. High valuations with no solid earnings to back them and the global headwinds may unnerve the retail investors, if not all of the institutional players. Being aware of these concerns may help a retail investor only to a certain extent, but taking decisions based entirely on them may be financially damaging.

For retail mutual funds investors, therefore, here are few things to look at in these uncertain times. Stay put if your goals are more than five years away If the financial goal for which you are saving is at least five years away, it's better to continue your investments in equity mutual funds. Studies have shown that equities have delivered high inflation adjusted return over long term than other asset classes such as debt or gold. Further, the volatility in short-medium term is higher in equities and hence holding them over longer period helps in easing out the volatility.

Prune equity allocation if your goals are years away If the financial goal is at least five years away, it's better to be cautious and not expose all the funds into equities. Use the current opportunity to trim your exposure from equities. One may route savings through balanced mutual funds, which have at least 65 per cent equity allocation for tax efficiency.

De-risk when your goals are nearing and within three years If your financial goals are nearing, i. Over the short term, especially when the goal is near, equity markets may witness a fall, making a big dent in the accumulated corpus.

Always have a de-accumulation or de-risking plan in place to make a soft landing. No matter at what level the markets indices are, de-risking is important if your goal is near. Preservation and protection of capital is an important part of the financial planning process. You may start shifting funds from the volatile equities into less volatile debt mutual funds, including liquid funds or short term debt funds depending on the time horizon. Stagger the process in equal monthly or quarterly instalments in a disciplined manner.

Second, don't try to time the market while de-risking.

Do it dispassionately and don't get influenced by sharp market movements or expert views. Third, don't ignore it. It's a vital aspect of goal planning. For an investor looking to invest a lump sum amount into mutual funds, a systematic transfer plan STP , a facility in mutual funds, fits the bill. Retail investors are anyway better placed to invest in mutual funds and not directly in stocks. Instead of exposing the entire funds in one go, one may opt for an STP.

Under STP, funds from one specific scheme get diverted into another scheme of the same fund house for a predefined amount and at a pre-defined interval. An STP comes in handy as funds would initially get invested in a specific low volatile scheme such as a liquid fund and from there a predefined amount keeps getting invested into the equity scheme of the same fund house at regular intervals.

This approach keeps the entire investible amount away from the volatility of equities, especially as is seen in these times. The volatility in liquid funds can be very low as compared to equities.

Alternatively, one may use arbitrage mutual funds more tax efficient than non-equity funds as volatility is low in them, similar to liquid or short-term funds. Opt for the tax-free dividend option. Illustratively, if you have Rs 4 lakh to invest among four diversified equity fund, park a lakh each in a liquid fund of the fund house whose diversified fund you are interested to invest in.

Set up an STP of Rs 8, or Rs 16, over 12 or six months for monthly transfer of funds from liquid to the diversified equity scheme. Although, one is advised to not try timing the market, an STP helps in minimising the risk attached with volatility.

Over time, it also helps in accumulating units at a lower average cost than otherwise. The funds make their way into the markets on a staggered basis.

An STP also helps during the de-risking process when one wants to transfer funds from equity funds into less volatile debt funds.

Keep SIPs running on course All mutual fund investors, investing through a Systematic Investment Plan SIP may continue with them. SIPs are not exposing your funds to market volatility all at once. When the index is down, they get more units and when the index rises, less units are bought. This approach helps in accumulating units, the average cost of which is lesser than otherwise. The risk of volatility gets minimised through the SIP approach.

Any fresh investment may be made in the same folio rather than diversifying for the sake of diversification. Review your portfolio for laggards This could be the time to review your mutual fund portfolio.

How Mutual Funds Affect Stock Prices | Investopedia

Look at the fund returns against their benchmark and category returns. This could be the time to remove the consistent underperformers from your portfolio. Evaluate the funds over a long time horizon of at least 3 years and not on their short term performance as equities need time to perform.

Review sector funds Importantly, if you have sector or theme-based funds in your portfolio, use the present market opportunity to have a second look at them. With the Goods and Services Tax GST looming around or say the impact of Brexit on Indian firms, the fortunes of Indian companies may be impacted.

The decision to carry on or exit needs to be taken accordingly. Asset allocation is the key to returns Many studies have shown that portfolio returns depends largely on the allocation of assets in the portfolio. The choice between large-cap or mid-cap does not construe how much return would one's portfolio generate over time. Rather, it's the allocation between different asset classes such as equity, debt, real estate, gold that will determine the final output.

Rebalancing of asset allocation is, therefore, an important exercise in financial planning. When equity performs well, its allocation in your portfolio goes up. Trimming it in favour of debt could help because in a falling interest rate scenario, debt happens to deliver better returns. New investors So how should a new investor view the current market situation and should he take the plunge now?

How Funds Distort the Stock Market With Month-End Trading - WSJ

If the answer is in the affirmative or not in agreement, it will be like 'timing the market'. By going back to basics, what is important is 'time in the market'.

Mutual Funds: Definition, Pros, Cons, Types

If the financial goal is at least five years away from now, the answer then appears simple. As a beginner, one may start either with a large-cap diversified equity mutual fund or an index fund and over time add a mid-cap to the portfolio.

It helps to understand the volatility attached to equities and the impact on a fund's net asset value NAV.

Conclusion Over the last 5, 10, 15 years, the markets have witnessed innumerable events. While most of them had short-medium impact on indices, the long term nature of equity as an asset class is still intact. Time to stay put with an eye on the goal and not get carried away by the index numbers, unless you are a trader and looking for short term opportunities in the market.

Living and entertainment Timescity iDiva Zoom Luxpresso Gaana Happytrips Cricbuzz Get Smartapp Networking itimes MensXP. Hot on the Web UBER OnePlus 5 Top 10 mutual funds GST Sensex Gold rate today Sensex Today.

Services ads2book Gadgetsnow Free Business Listings Simplymarry Astrospeak Timesjobs Magicbricks Zigwheels Timesdeal dineout Filmipop Remit2india Gaana Greetzap Techradar Alivear Google Play Manage Notifications.

Digg Google Bookmarks StumbleUpon Reddit Newsvine Live Bookmarks Technorati Yahoo Bookmarks Blogmarks Del. My Saved Articles Sign in Sign up.

Find this comment offensive? This will alert our moderators to take action Name Reason for reporting: Foul language Slanderous Inciting hatred against a certain community Others. Your Reason has been Reported to the admin. Fill in your details: Will be displayed Will not be displayed Will be displayed.

Rating 4,4 stars - 951 reviews
inserted by FC2 system