Let Not Elections Hold You Back from Investing in MFs

The latest figure from the MF industry body AMFI shows that the net inflows into equity mutual funds have slowed down to their lowest level in the last two years. The same is being reflected in MF investments in the equity markets; however, the fall is much steeper. According to the data released by SEBI, MFs had sold shares worth Rs 7732 crore in the first 20 days of March 2019, one of the highest sales by MFs in recent years. What this means is that the fund managers have slowed down their investments in equities, bracing for election-related volatility.

We all know it is an event risk. Nobody likes economic uncertainty, which may arise due to any unexpected outcome of the elections. Nevertheless, as an MF investor, you need not worry too much and stop investing, nor should you wait till the election is over and the poll results are out. The fund managers equipped with better resources are taking decision on your behalf. It has been observed that equity markets become volatile during the election period, but have generated good returns during the election year.

Moreover, event risk such as this is something that should worry a short term investor, not a long term investor. Therefore, you should stick to the original investment strategy and asset allocation. The cover story in this issue dives deep into how MF returns have panned out during the election year and the previous year. Our analysis shows that MF equity returns have never given two consecutive years of negative returns since 2005. Hence, you can even make lump sum investment now for the next three years.

Nevertheless, if you are a short-term investor, equity may not be the right place to be in, for now. You can invest in debt funds, depending upon your financial goal and investment horizon. One of our special reports on debt funds speaks about when you should invest in debt funds and what you should look for in these funds.

Whatever your investment horizon and risk appetite may be, you should keep on investing and should not wait for the outcome of the elections.

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