Ms. Radhika Gupta on How to Invest in Mutual Funds in 2020 amid Coronavirus crisis
Corona Virus has everybody worried. The world markets are rattled over the last one month. And things are looking scarier. While we are concerned about the health and welfare of our families, we are also worried about our money to a certain extent. What do we do with our money in times like this. Should we invest our money lying in the FDs and liquid funds? Or should we conserve it? And, for people who already invested in mutual funds, this fall has made not so good returns in the last couple of years.
While the investors are used to the same advice — “Stay Invested, stay put, use the opportunity to invest at dips, focus on asset allocation”. The honest thing is all these are very difficult to follow. Most people are concerned with their situation. So, we at ETMONEY asked our users to tell us about their concern and we asked, Ms. Radhika Gupta, CEO, Edelweiss Mutual Fund, those questions.
1) The way the market is falling I am worried that my portfolio will go down to zero? Is it really possible? And if that happens, then what happens?
First I will start by saying, as you said it is very easy to say, Ms.Gupta: buy more at market dips but it is not all that easy. As a young analyst, first I invested my money in 2008, actually in the end of 2007, and in 2008, the markets fell 50%. When it falls it feels like the world is going to end. So when it falls 20%, our mind says it will fall 50% and then it will go to zero. I can’t predict whether your portfolio will fall 20 or 30% or 50%. But what can tell you that I will not go to zero. This is for the simple reason that if you are holding any portfolios, Edelweiss or otherwise, you will be holding companies and these companies will have some profits. Assuming that these companies are not doing well. Be it reliance, infosys, ITC, their value will not go to zero and hence, your portfolio will not go to zero. Can it fall another 20%, yes it can, but i don’t think it will go to eo
2) A lot of people are telling me that this is a good time to invest in a long-term portfolio, how could we know when this will end and reverse. What happens if the market falls 20–50% from here? 3) I was told that Balances Funds are comparatively safer. I have only invested in Balanced Funds and today, even they are negative. Now, I am thinking of investing in pure equity funds to cover the losses. Is it a good approach?
This is one of my favourite topics because I do like Ms.Gupta: Balanced Funds.First, I should tell you, why do you invest in Balanced Funds? You invest in Balanced Funds because you get protection in market selections, otherwise you should invest in pure equity funds. But the problem is, the Balanced funds in India come in all different flavours. From the most conservative to the most aggressive, you will have Balanced Funds. So in my view, when you buy a Balanced Fund, seek you for a fund that gives you protection. Now, since the Balanced Funds hold 30,40 or 50% equities it will not fall like equity funds. Like, if markets fall 20%, it will fall 7%, then it is a good investment. But if your Balanced Fund is falling as much as the market, then it is not really worth buying.
Even within Balance Funds, there are several choices, as an investor I would recommend a really conservative Balanced Funds, i,e. Balanced Advantage Funds ensure to hold less equities when the market falls providing a higher protection level, so many Balanced Advantage Funds are doing reasonably well during this time. So for conservative investors, if you have bought the right Balanced Fund, then I think you can stay.
4) What is the right investment strategy right now — lumpsum or continue SIP as we are doing it?
First, I will tell you what is a bad strategy. Redeeming your money in lumpsum is a bad strategy. Ms.Gupta: Stopping your SIP is a bad idea. Redeeming your lumpsum is a bad idea because the markets have fallen already and you do not want to make your paper losses, real losses. Stopping SIPs is a bad idea because, as an investor you do SIPs to cut down the impact of market swings. Because of SIPs you are benefiting from the fall and actually accumulating more units. The heroic idea is to jump into investing right now, and maybe you lose another 10%. The basics are continue our SIPs and keep our lumpsum invested. And once things settle down, be prepared to do more investments.
5) I started my SIP five years ago with a goal in mind and my return expectations were 12%. Now, with another two years to go, the returns are barely negative or flat. So what should be my strategy, should I stop my SIP, even though my goal is 2 years away, and restructure my portfolio moving to debt. Is that a good idea?
The good news is that the investor has done an SIP with a goal in mind and that goal is two years away. Now if the first three years were negative, then I would like to say only one thing that if the returns were negative in the first three years, it would never be 12, 12 and 12. It may be -20, 0 and then 30 or 40. I would suggest that you Ms.Gupta: continue with your SIPs that switch to debt because the probability of getting closer to that goal is better with continuing with the SIP. What may happen is that your 5-year goal will become a 6-year goal and you get a 10% return instead of 12%. These are extraordinary circumstances and we have to be prepared for them.
6) So how do you take care of these extraordinary circumstances, say when your five-year goal becomes a six-year goal, or maybe retirement or buying a house?
Be ready for that buffer, because something or other happens in every generation. There was a generation that saw independence and world war 2 another saw emergency, our’s saw Coronavirus
7) I have always been a multi cap investor. I have been told once the recovery happens, then the large cap will lead and the small and mid will stagger. Now, should I start moving from small and mid cap funds to large caps? I have been investing in small and mid caps for the last 12–15 months, and they have fallen more than large caps, so should I stay invested or move to large caps?
I don’t know whether anyone can predict whether the recovery will start from a Ms.Gupta: large cap and then move to small and mid caps. Here I want to say two things. One, if you have invested in small and mid cap and it has fallen more than large cap then that is expected. If you’re a first time investor, keep in mind, if you have invested in this category, they will offer higher growth but then again the losses will be equally high. Sitting today, even before this coronavirus thin happened, large caps have done pretty well and small caps have lagged behind. So your probability of better standing today is more on mid and small cap than large cap. So your upside, what we call in financial terms as risk reward, is in favour of small caps. So every portfolio can be a 100% mid and small cap, it has to be a mix of funds, so either it can be a multi cap, or you do 60% large cap and 40% small cap. But switching from mid to large, then again mid caps, because if things become okay, I do not think that is a very good idea.
8) I have the same portfolio for 2 years and every day I see its value going down, what should I do? Should I redeem and re-enter later or should I stay invested? What strategy should I follow?
Redeeming the money is a stupid answer because what you are seeing in the screen or in the statement it is a paper loss, the minute you press the button to redeem it, it becomes real loss.
So wait, turn of the screen, watch something else, watch netflix. Do not look at it every day. And when you look at it after one or two years, they become much easier to digest than when you look at it everyday.
Even during the best of years in the markets, there have been periods when the markets have gone 20 to 30 percent down. So this happen, so control the frequency of the time you look at the market.
9) But a lot of investors are saying why don’t I stop my losses here and re-enter the market when it is more stable? 10) I believe in buying in dip, and in the last few days I have put in all the money I had except my emergency fund but now I am worried when the market will rebounce? 11) I have some money that I wont be needing for next 6 to 12 months, shall I invest the money in equities now but what if the markets do not recover?
If you have six to 12 months of money, you should not Ms.Gupta: invest in equities because market might not recover infact it can get worse, we are not sure whether we can recover from corona virus or not. I don’t think 6 month money should be put in equities. Six months money should be put in something that can deliver money within that time period like arbitrage funds, short-term debt funds and liquid funds, I wont even say Balanced Funds. You have to invest in conservative funds.
12) I am committed to my investment plan? I have invested in liquid funds and have some FDs too. How should I approach this correction? I am willing to invest …., what sort of fund should I invest in? Large, mid, gold or international funds?
If you are a new investor you should start with basic multi-cap funds, or you can start with large caps and mid caps. And you can start by staggering your investments in the STP format and if you see markets starting to bounce back and panic subsidies due to corona, you can start investing in more aggressive manner in form of lumpsum contributions. Once you have a Ms.Gupta: multi cap portfolio in place then you can start explore other avenues. I always feel investors should put 5 to 10% of their money in international funds, as you can see the rupee has gone for a toss and it always goes for a toss, any emerging market currency goes for a toss in a crisis like this. So it is good to have some funds in some overseas funds, given overseas funds have sharply fallen you will get a good opportunity there. Now if you start with your basics and then move on to other things.
What about gold???? 13) I have lost money from profits and not principal and hence, still on the positive side. I think it is better to wait for the markets to stabilize before making further investments. Is it the right approach or do you think it is a good idea to invest only in debts? Are long term bonds are good options?
Ms.Gupta: Firstly, it’s good that you have not made any losses.
Now there are two parts. First, there are good opportunities in equities, so only debt is not the answer. Equities will present a debt opportunity. If you want to wait till things settle down, then that’s not a bad idea
I think you will get very good opportunities in long term debt funds. Debt markets on the corporate bond side also corrected. For example, for three-years, you can invest in AAA rated PSU funds which are well above 7% now, which was 6% a month ago. So it is a good time to lock-in yields in some good quality companies. In debt, my only recommendation is please avoid things that are credit or exit, or very exotic, do the basic things like banking PSU funds etc, focus on high quality, because in that itself you got bit of opportunity in last one month
Last piece of advice
Stay invested, and stay safe and keep talking and reading. It is very easy to panic about health and money. Have decent conversations like this help people ride through times like this. It is not only a financial battle but an emotional crisis too.
Originally published at https://www.etmoney.com.