Let MFs Expand Your Investment Universe

These are interesting times for investors as both equity as well as hybrid funds have been performing well. Although the introduction of LTCG tax and DDT of 10 per cent on these funds in the Union Budget 2018 as well as the recent market volatility has dampened the spirits of investors looking to start investing in these funds, they remain the best bet to achieve medium and long-term investment goals. It is heartening to see existing investors continuing with their commitment to invest in these funds through SIP despite these hiccups. 

If you are one of those investors who have yet to invest in equity and hybrid funds, it is time to take the plunge without worrying too much about the changes in the taxation as well as the market volatility. Remember, equity as an asset class can make a huge difference to your portfolio returns over the longer term. Of course, the extent of impact will depend upon the level of exposure to equity through different types of funds. 

However, to get the best results from mutual fund products, you must plan your investments well by considering your time horizon and risk profile. It is equally important to adopt a forwardlooking investment approach as that will help you overcome dilemmas that may emerge out of your not-so-pleasant past experiences of investing in mutual funds. The question that needs to be addressed is whether the fault lies with this investment vehicle or with its wrong positioning as well as erratic strategies adopted by you to invest in it. It is a proven fact that if one chooses the right funds and adopts a disciplined approach to investing, the chances of achieving different investment goals within defined time horizons increase manifold. 

It is equally important to adopt different strategies to get the best out of different asset classes. For example, equity investments require commitment of time and hence you must have the patience to wait out the turbulent times. Trying to time the market can be a futile exercise. Many investors who try to do so end up making the classic mistake of buying high and selling low. Remember, a long-term investment approach can make life easier for you. 

Many investors also face the dilemma of whether to invest a lump sum amount or invest systematically. While investors who have an investment plan in place can straight away invest the money as per the plan, it can be a difficult task for those who do not have one. For them, the prevalent market conditions often override all the other factors. No wonder, many investors end up acting imperfectly, when faced with such a situation. 

While a volatile or a depressed stock market prompts them to take refuge in the safety of traditional instruments, a rising stock market encourages them to adopt an aggressive strategy. Both these extreme approaches can be harmful to their long-term interests. 

For example, an extremely conservative approach can negate your inflation hedging capability. Similarly, an aggressive investment strategy can expose you to the risk of losing a part of your capital itself. 

Therefore, you must begin your investment process by defining investment objectives as well as deciding on their time horizon. During the initial stages of portfolio building, the focus should be on those diversified funds that have an established long-term track record. As regards the strategy to invest, if you are looking to make a "one-off" investment, it would be prudent to invest say half the money as a lump sum and the remaining half through a Systematic Transfer Plan (STP). Under STP, the money can be invested in an ultra short term debt fund and then transferred at a pre-determined interval, say on a monthly basis, into a pre-decided equity fund. This approach would also help you avoid the mistake of committing too much money at a particular market level. However, if you are reasonably sure about investing in an equity fund on a regular basis, even if it is not at a short interval, you can go ahead with the lump sum investment without worrying too much about the market level.