The sustained rally from the drop in March 2020 has attracted many new investors into the mutual fund fold. The number of investor accounts or folios have increased from 8.97 crore in March 2020 to 12.02 crore in December 2021, an addition of 3.04 crore folios.
While the Sensex is up 125% from March 2020 low as of February 8, 2022, the index has corrected by 7% from its peak in October 2021 on account of continuous selling by foreign portfolio investors in anticipation of the unwinding of easy liquidity.
What should investors who are considering investing in equity at this juncture do? Advisers share their views on what they believe first-time fund investors should do.
Diversify - Nirav Panchmatia, Founder, AUM Financials.
The first experience any new investor should have is through the mutual fund route. Mutual funds are a great proxy to equity markets. New investors, who wish to invest lumpsum at this juncture, can consider Asset Allocator Funds, which invest in a mix of Equity, Debt, and Gold, which can provide better risk-adjusted returns. Investors can invest through a systematic investment plan (SIP) in aggressive categories like Mid Cap.
Follow asset allocation - Rushabh Desai, Founder, Rupee With Rushabh Investment Services.
Any investment, be it for new or existing investors, should strictly be based on goals, time horizon, risk appetite and asset allocation. Once this is decided investors can decide which segments will be suitable for them and the fund selection process can take place.
For new investors, at this moment, investing via SIP route will be much easier and more convenient. The valuations in many segments in the equity markets still look a bit expensive. Thus, I would not recommend any lumpsum investment at this point in time. Looking at the volatility equity markets may face going ahead, it is better to save lumpsum investments for decent correction.
First-time investors who do not understand a lot about equity markets should usually start with Large Cap or Dynamic Asset Allocation Funds to get a taste of the equity markets, if they do not understand how to select active funds then investing via traditional market cap based Large Cap Passive/Index Funds like Nifty 50 would be a better way to start their investing journey.
Ride the volatility through a Systematic Transfer Plan (STP) - Shifali Satsangee, Founder, Funds Ve'daa.
As part of their core portfolio, new investors could consider Flexi Cap Funds, since they have a broader investment spectrum to invest in and the fund manager has the flexibility to manoeuvre between different market capitalizations depending on market conditions and existing valuations in each segment. Additionally, Large & Mid Cap Funds that are permitted to allocate a small portion of the investible corpus into international equities could also be part of the core portfolio.
Most popular Flexi and Multi Cap Funds of 2021
Do you really need a Flexi Cap Fund?
Also, a combination of active and passive investing strategies can be used while constructing a portfolio for a new investor. So Index Funds could additionally be added to the core portfolio mix. Conservative new investors could take exposure to Dynamic Asset Allocation or Balanced Advantage Funds.
Investors lapped up these Balanced Advantage Funds in 2021
Ideally, new investors should take the SIP route to wealth creation, for risk mitigation, return optimization and better rupee cost averaging. Investors could take the STP route to take advantage of the volatility they are going to witness en route instead of investing lumpsum.
Stick with large caps - Melvin Joseph, Founder, Finvin Financial Planners.
First-time investors can start with SIP in a Large Cap Index Fund and a Multi-Cap Fund. This will provide adequate diversification. I would not recommend investing lumpsum in equity funds currently. Also, avoid or try to have less exposure to Small Cap Funds as they can be highly volatile and can see huge drawdowns given the headwinds we are likely to face ahead.
Have a longer time horizon – Vinod Jain, Founder, Jain Privy Client.
First-time investors can invest through the SIP and STP route with seven to ten years of time horizon in equities. Also, they should make their initial investment in Large Cap or Aggressive Hybrid Equity Funds.
How to choose between two Hybrid Funds
