On an average, more than 10 lakh new demat accounts were opened every month between June and October this year. The total number of demat accounts is already nearing the five-crore mark. Concepts such as ‘trade from home’ and ‘invest from home’ are gaining currency as more and more young professionals and first-time investors are entering the stock market to capitalise on the current bull run.

But what makes these first-time investors go in for direct equity investing, rather than starting with a mutual fund? What happens if there is a sudden downslide in the market? What can mutual funds do to attract this growing tribe of young investors? With equity markets currently expensive, what non-equity categories of funds can a new investor look at?

These are among some of the topics discussed at the 10th and last episode of ‘Smart Investor Education program’, a webinar series presented by ICICI Prudential Mutual Fund and BusinessLine , on Saturday.

MF expertise

“Today, a lot of youngsters are looking at stock market or alternative investment avenues to park their surpluses or to meet their goals or as an important tool for their financial planning journey, which is a very encouraging trend,” Abhijit Shah, Head of Marketing, Digital and Customer Experience, ICICI Prudential Asset Management Company, said at the webinar ‘Improving Your Mutual Fund Investing Experience’. The webinar was moderated by Aarati Krishnan, Editorial Consultant, BusinessLine .

However, he also added that while do-it-yourself is a great approach, investors should also be mindful of their risk profile, investment time horizon, companies or sectors that they are investing in, risk-appetite and many other factors before investing.

“Mutual funds are a vehicle that do all of this for the investor. There are various types of mutual funds for various asset classes, risk profile, time horizons and it is well regulated from an investor protection point of view. So investors can use such expertise to diversify their investments into various products,” Shah added.

BusinessLine’s Krishnan said that creating wealth by directly investing in stocks may appear easy during bull phases like the one we are witnessing now, but doing so sustainably needs balance sheet reading and sector analysis skills. Through their diversified investments, mutual funds often contain downside risks better than concentrated stock bets.

To a question on whether one should look at MFs despite the high valuation of the equity market, Shah said investors need not feel they have missed out the current rally, since money-making is all about asset allocation not just about one particular asset class.

“Balanced advantage funds and dynamic asset allocation funds are the categories of funds which automatically move between debt and equity, depending upon market conditions and valuations within these funds to provide a balanced portfolio,” said Shah.

The SIP route

He also said that staggered investment (through SIPs) is another way to beat cyclical market downturns and to benefit from the cost of averaging and compounding in the long run.

Shah also pointed out that the rapid digitisation over the last few years has made the on-boarding process for new SIPs completely frictionless.

On the pros and cons of investing in SIP through direct, regular (through advisors) and through new-age fintech platforms, Shah said: “These are just various routes to start a mutual fund journey, but an investor should choose an option based on his profile, risk-appetite, time period and ability to decode various nuances associated with each financial product.”

On liquidity, Shah said mutual funds, as an asset class, provide instant liquidity as compared to longer cycle time for assets like real estate. However, he also cautioned that people should not simply redeem mutual funds for the sake of convenience but should keep in mind the long-term goal or purpose for which it was invested.

Responding to a viewer query on recent spate of profit-booking in SIPs, Shah said, “As long as it is in line with one’s financial goals, it is the right thing to do; but investors should also consider their financial plan, investment objective, fund requirement and the taxation aspect since mutual funds redemptions attract short-term or long-term capital gain tax depending on the holding period.”

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