Are Equity Fund Investors Wary of Higher Market Valuation?
This month will mark the 10 years of the great financial crisis that culminated in the fall of the 158-year old financial institution Lehman Brothers Holdings. Indian markets had not remained immune from the crisis and the frontline indices had then fallen by 55 per cent, whereas the broader indices fell by as much as 70% from their peaks in January 2008, till the next 15 months. One of the most important lessons the crisis taught us is that in the equity markets, the “buy and hold” strategy works most of the time.
Ten years down the line, markets have touched new life-time highs, both in India and the US. The annual returns generated by the equity bellwether indices in India since the peak of 2008 is around 7 per cent. This is, even if you had invested when the market was at its highest level.
The current trend in the inflows in the equity mutual funds indicates that investors are wary of investing as equity markets are trading at life-time highs. This is reflected in a continuous fall in the net inflows into the equity-dedicated mutual funds. The latest figures released by the industry body AMFI also reflects this. The net inflows into the equity MFs in the month of August were Rs 7,734 crore, down from Rs 10,444 crore we had witnessed in May 2018.
This fall is also impacting the activities of MFs in equity markets. There has been a sharp drop in the equity purchase by mutual fund managers in India. For the month of August, they had purchased Rs 4094 crore, which was almost the same as in the previous month's (July 2018) purchase of Rs 3995 crore, the lowest since February 2017.
Therefore, even if currently the market is trading at its life-time high, there should be no reason why you should stop investing. There is an age-old wisdom in the equity market, that is, you cannot time the market. Experience shows that long term investors should not be afraid of investing even at higher levels as it will reward them with better returns in the long run