The Hindu Business Line : Spread investments over multiple fund categories

NOBODY has ever doubted the claim that investors in equity funds may face tremendous risks in the short term. Rarely before was this so amply clear as in the last week.

Stocks see-sawed heavily, and while a straight 140-point fall on one day was matched by 155 points rally in the next, the volatility did put investors at great risk.

The latest round of gyrations in the market will probably prompt a veteran to repeat what has clearly become a cliché - risk is part of an investor's life.

Be disciplined: But before we go further than that, allow us to dwell on a couple of key issues. One, equity funds are increasingly finding it difficult to pick stocks at reasonable valuations. Two, far too many sections of the investment fraternity are taking speculative calls when it comes to entering equity funds.

Agreed? If your answer is in the affirmative, let us put forward what the more responsible sections are saying. Such speculation, they maintain, is not quite healthy, not when someone is entering a fund blindly with the intention of getting out sooner than later.

Why are we doing this, rampantly and with little regard for discipline? The answer is not far to seek. Most investors are convinced that equity funds will give them oh-so-easy returns, even when some experts are branding the Indian market as `pricey'.

Time for diversified funds: In a situation like this, you are not really doing yourself a service if you are not spreading your surplus over multiple fund categories. May be, there is a minor case for avoiding the inherently-risky sectoral funds, but surely one needs to be adequately invested in diversified equity funds across styles and market cap range. And this is not to forget index funds, although these products are not too wide-ranging in India.

Obviously getting good advice on these matters is important. Ask yourself, therefore, whether the advisor you have mandated has your interests in mind - and not solely his. Also remember that there are a lot of online tools available; use them if you will, the end-result should ultimately enable you to create a good portfolio of equity funds. At least some of these funds - if not all - should be approached through the regular and systematic investment route. Or so say experts.

Funds' dilemma: At another level, interactions with some sections of the investment community may make you feel a bit nervous. For one thing, the indices have been scaling new peaks. Allocating a big chunk of money at one go may not be quite the right thing to do. In fact, such an allocation may run into trouble if the market, after reaching a new high, comes crashing.

The investor concerned will, on the other hand, stand to gain if the market moves up to even higher levels. The state of affairs will confuse even the most intrepid among us. However, staying away from the market altogether may not be a bright idea at all.

A relatively painless way of doing things is to approach equity funds through SIPs. You may be wondering why we are referring to SIP every now and then, but believe us, this is probably the smartest option under the circumstances.

Investors should use every sharp correction to their benefit and at the same time continue to look to increase their exposure to the equity markets on a continuous and systematic basis.

Mr Nitin Jain, Fund Manager (Equity), SBI Mutual Fund

Feedback may be sent to nilanjan@thehindu.co.in

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