What should a novice investor do in view of the Franklin contagion threat?

You have always advised that for a new and conservative investor, investing through SIPs in balanced funds is the best bet. I have invested in ICICI Prudential Balanced Advantage Fund and HDFC Balanced Advantage Fund. I also have investments in Aditya Birla Sun Life Equity Hybrid '95 Fund and Nippon India Equity Hybrid Fund. I have been investing for 10 weeks.
Amid the Covid-19 scare, six of Franklin schemes have been closed and the threat of contagion is looming over the mutual fund industry. Against this backdrop, what should an investor like me do?
- A. K. Jain

One of the parameters to advise the novice to invest in balanced funds is based on his/her investment timeframe of at least four-five years. So, if you are investing for such a time horizon and you are in the accumulation phase of your investments, then you should do nothing but stick to your plan. After a few years, you would see that the current market situation was the best time to make investments.

The season for fixed-income funds has changed rapidly. It is important for fixed-income funds to continuously perform better. With regard to Franklin, what has happened until now in fixed-income funds is a systemic failure. But it is not that all investors have lost their money rather the market situation is such that the portfolios do not have enough liquidity. Further, there are no buyers for it. The debt markets often see two extreme sides - either excited people or no one at all. And today, we are seeing the latter extreme.

As mentioned, investors' money has been locked but they will not lose their money but will slowly receive it over a period of time. In my opinion, mutual funds still make for a good investment vehicle, giving instant diversification with convenience. Having said that, in every 10 years, a situation like this may occur when you may feel that all you have done up till now is wrong. But that will not be wrong.

This article was originally published on May 05, 2020.