Tamaso ma Jyotirgamaya (from Darkness to Light)
In life, we cross several milestones. Sometimes, just being at the right place at the right time is all that is required. For equity mutual fund investors, at sometimes could be just the choice of funds that helped them get a return of 18-34%.
In the past 12 months, the markets have seen two different events that slowed down the economic activities. Demonetisation and Goods & Service Tax (GST) affected the financial calculations of businesses, from large corporate to small traders.
When the government tried to rein-in cash dealings, personal lives and the unorganised sector were badly affected; to some extent big businesses too. Market participants became cautious and they predicted volatility and a big correction.
But one big factor of liquidity proved them wrong and although the markets are a slave of earnings, this time life was different in equity market. The proverb “When the head is present, the tail should not wag” proved wrong.
Large cap stocks struggled to deliver big return, but small and micro-cap stocks took the market by surprise and delivered superior returns.
Here are the numbers:
During this period, I too suggested asset allocation and lower exposure to small- and micro-cap fund. Many of my clients ended up with a fewer percentage points less than expected, but at least they didn’t spend sleepless nights during the volatile phases this year.
But it must be noted that the one-year average return of large-, multicap-, and midcap funds were not far apart. The choice of funds made the difference.
Going forward, the market may exhibit similar trends till the earnings are back and the economy improves from here. One factor keeping the market intact for the past few months, despite FIIs selling heavily, is the retail investor inflows into mutual fund through the SIP route. This has never been seen this much in the Indian market.
So, don’t speculate too much on the market. Instead, follow the basics and practise the right allocation, based on your risk appetite and tenure of the goal to earn the return you want.
Don’t invest for next year based on the previous year’s return. Be rational in investing this festive occasion.
As in the past, those who invest in the equity market are very special and they beat those investing in fixed deposit by a big margin.
And remember to share some of your money with those in need. That will compound your joy.
As Winston Churchil said, “We make a living by what we get. We make a life by what we give.”
Happy Deepavali to you and your family.