'Index funds, ETFs good options for new investors' | Economic Times

As market continues to touch historical highs, fund managers believe that valuations in many pockets are not reasonable anymore. How should retail mutual fund investors navigate this market? "Market valuation in certain pockets is at historical highs while the risk to earnings continues to remain a concern. Hence, we believe one should evaluate all the category stocks on the basis of various valuation parameters," says Yogesh Patil, Head-equity, LIC Mutual Fund. Edited Interview. Amfi data shows increased investor interest in flexi cap schemes. What are your views on this? Flexi cap allows investors to diversify their investment portfolio across companies of different market capitalization, mitigating risk and lowering volatility, so quality and weightage based on market capitalization matters a lot from a risk perspective. We have recently seen some of the industry peers have launched new Funds in the flexi cap category which has helped in creating more awareness about the flexi cap as a product. In the last one year, Mid cap and small cap indices has outperformed the Nifty index – this has also created positive investor sentiment towards the flexi cap schemes. Today, market valuation in certain pockets is at historical highs while the risk to earnings continues to remain a concern. Hence, we believe one should evaluate all the category stocks on the basis of various valuation parameters. Are flexi cap funds the best bet to invest in a volatile market? How should investors go about their fresh investments in the current market?Volatility is the essence of the equity market. However, one should look at the equity market from a long-term perspective. Every strategy works with some time frame. So, one should strive for quality of portfolio. Long term horizon coupled with disciplined investment is key to wealth creation. What are your views about the equity market? What is the outlook in the coming one year? We continue to believe the market will remain volatile in the short term due to uncertainties related to third wave, inflation and global events like rising interest rates. From medium to longer-term we are bullish on Indian equity markets. We see a few trends playing out strongly and businesses associated with these would-be clear beneficiaries. Increased competition, entry of players with better technologies, changes in government policies, and stringent regulations, have led to creation of oligopolies in a lot of sectors like telecom, real estate, banking to name a few. Higher compliance costs, increasing tax structures, liquidity and technology have reduced the share of unorganized players since introduction of GST/demonetization. At the same time, organized players have gained through efforts to directly reach consumers, digitize distribution, e-commerce, and access institutional funds. The Indian economy is at an inflection point that marks the start of a new growth cycle. With respect to consumption, while rural consumption has remained resilient, urban consumption is gradually picking up pace. We believe that in the medium to long run, the confluence of demographics, productivity and globalization will be supportive of a higher growth rate.Is this a good time for new investors to enter the market? Which categories would be the best for newcomers? It is always advisable for new investors not to trade directly in equities. One must start with investment in equities either through mutual funds or one can consult his/her financial advisors. New investors tend to be unaware of the risks associated with equity markets. On the other hand, mutual funds have professionals with decades of experience in fund management. Hence it is advisable to participate in equity through mutual funds initially and let the experts take care of your portfolio. Index funds and ETFs are a good option for new investors to start with investments. What are the dos and don'ts for mutual fund investors at this point?We would request mutual fund investors to continue their disciplined investment and have patience. One must understand that unlike FDs, returns in mutual funds are nonlinear in nature. Some mutual fund investments particularly through SIP may yield negative returns in the initial period (from few months to few years) but then the picture could change completely in next few years and performance may turn into double digit returns on a compound annualized basis with time , compounding is called as 8th wonder of the world. But to fully realize its potential high level of conviction, patience and long-term approach is necessary. So along with performance, ability to align with risk the fund offers is equally important.