Equity Mutual Fund Investments when Markets are at a high

As the market scales new peaks, mutual fund investors are wondering if their fund portfolios will deliver in the future. The high valuations pose a difficult choice for both new investors and regular SIP investors. Here's how they can make the most of the market situation.

Fresh Lump-sum Investment - If you are planning on investing in a fund or starting another SIP, you will need to take a balanced approach, suggest financial planners and experts. For instance, if you are looking to invest a large sum, then a hybrid equity fund may be the right choice. "Any lump-sum now may be best deployed in an equity savings fund or hybrid equity fund, where the money is invested across stocks, bonds and arbitrage in a manner that reduces the risk and makes it tax-efficient. These funds will deliver higher returns than pure debt funds, but will be less volatile than pure equity funds, as they invest in debt and arbitrage instruments. For a slightly long time horizon of say, 4-5 years, a dynamic equity fund would also be a good alternative, say experts. Here, the fund manager will dynamically switch the equity exposure, investing more when the markets are cheap and less when they are expensive. 

Looking to start an SIP? - Some investors might also be thinking on starting a fresh SIP in an equity fund. This approach may still work if the time horizon and the choice of the fund are right. Money invested via SIP, at current market levels, is likely to fetch modest returns over the medium term. A longer holding period may be required to earn more healthy returns. Apart from the time horizon, the investors initiating an SIP can also opt for a multi-cap fund. A multi-cap fund retains the flexibility to decide the optimum mix across market capitalization depending on the relative attractiveness of each basket. This puts it in a better position to build a portfolio, taking into account the current market environment. Apart from this, if investors have some surplus, they should put the money in a liquid fund, which can then be deployed at the right time into an Equity Fund, says expert from one of the leading Mutual Fund Research Company in India. 

Cost of stopping SIPs - Staying away from the market and not deploying the money may come at a cost: the lesser the money you have working for you, the lesser would be the final corpus generated from the SIP. Over the past 10 years, a regular monthly investment of Rs 5,000—total investment of Rs 6 lakh—would have helped you amass a corpus of Rs 12.23 lakh. On the contrary, stopping the SIP midway, due to high valuations, would have yielded a kitty of Rs 9.25 lakh. Another issue is what to do with the money that is not used for the SIPs. In most cases, the amount would either remain idle in the savings account or be spent on household or lifestyle needs. Clearly, you would be in a better position to reach the target amount for your goals, if you remain committed to the regular savings habit.

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