Between March and April, many equity categories have registered a drop in net flows. And even though the market has recovered, some investors lost money by selling while others are complaining that their long-term SIPs have turned negative. We asked these five fund managers to share why they think investors must keep investing in equity
Pankaj Tibrewal, - Equity Fund Management, Kotak Mahindra AMC
"In the short term, when the markets are performing well, SIP returns will be impressive. When the markets are performing poorly, SIP returns tend to be negative. We can say that in the short term, SIP returns are largely driven by market sentiments. But in the long term, it is the fundamentals that will succeed and reward the disciplined investors. If you see 10-year SIP returns, for the month of March and April, they have remained in the positive domain, despite market turbulence.
"If there is no financial exigency, one must continue with their SIPs right now to take advantage of lower market valuations and get the benefit of rupee cost averaging. To create wealth in the long term, now is the time to take advantage of this situation. It is extremely important that investors follow a disciplined asset allocation and stay in equity for the long term based on their risk appetite and financial goals."
Neelesh Surana, CIO, Mirae Asset Mutual Fund
"Past returns during periods of extreme pessimism or optimism are not a good data point for any investment decision. This is like driving a car forward but all you have is a rear-view mirror and you keep looking at it instead of focusing on the road ahead.
"The fall in stock prices owing to COVID-19 was violent, whereas 'value' is driven more by long-term assumptions and, importantly, DCF-based valuations have not changed significantly as in most businesses, the impact is of one-year profits. The resultant gap between price and value has increased the overall margin of safety for risk-adjusted returns. Volatility is a boon for contrarian investing. With an eye firmly on fundamentals, a contrarian investor seeks opportunities by identifying the extent of overreaction during times of extreme pessimism.
"The crux of the message is that returns improve significantly when uncertainty abounds. Whenever there is a crisis, it is extremely important to revisit and maintain asset-allocation discipline. We recommend investors to balance asset allocation and allocate to equities the capital that is not required for the next three years."
Mrinal Singh, CIO - Equity, ICICI Prudential AMC
"For a long-term investor, any market correction opens up pockets of opportunities. At such times, an investor can accumulate more units at a lower cost. This paves the way for potential outsized gains to be made over a complete market cycle.
We continue to believe SIP remains one of the best ways to invest in capital markets. It inculcates financial discipline, ensures that a lay investor remains consistent and focused with one's investment, all the while slowly but steadily moving towards achieving one's financial goals.
Panic-selling your investments when markets are down translates into making the notional losses permanent. Regardless of the market volatility, investors should focus on their decided investment goals."
Vinit Sambre, Head Equities, DSP Mutual Fund
"The last three years have been quite challenging from the equity-investment perspective as investors have hardly seen any returns being generated. The uncertainty around COVID-19 further dampened sentiment. Investors with low risk appetite and/or investing with a short-term horizon should avoid equity investments, whereas investors who have seen drawdowns in the past and understand the risks associated with equity markets need to increase exposure to equity in line with their asset-allocation strategy. To give an example, investors who had invested in equity at the peak of 2008 bull market had to wait patiently for over six years to see returns. It's a patience game.
"Ultimately, the returns from equity investments are dependent upon the performance of the underlying companies held. If these companies keep performing well, equity returns would eventually follow. Fluctuations caused due to the external environment, which causes price of the security to fall more than its inherent value, actually create pockets of opportunity for long-term investors to scale up further.
Ashutosh Bhargava, Fund Manager and Head Equity Research, Nippon India Mutual Fund
Interest rates have come down, policy stimulus is underway, and the economy is slowly but surely coming out of the COVID-induced lockdown. As we come out of the crisis and move towards FY22, the worst will be clearly behind us and recovery would start firming up. From corporates' perspective, beyond the near-term challenges, the profit outlook would improve. Various sectors are seeing increased industry consolidation. Reduced competitive intensity bodes well for the pricing power of the corporates on the other side of COVID. Globally, policy support remains quite aggressive. Record-low interest rates support valuations despite earnings volatility. This is supportive too for valuations of Indian equities.
Historically, whenever Indian equities have underperformed so badly on a three-years basis, the subsequent three-year returns are quite robust versus other asset classes. After a prolonged time and price correction, investors should continue deploying money in equities at every opportunity and expect superior medium-term returns.