Stock market is on a song; what should mutual fund investors do?

stock market high

The corporate tax cut seems to have worked wonders for the sentiment of the stock market. After gaining around 1900 points on Friday, the market bellwether S&P BSE Sensex opened higher on Monday. The key index surged by over 1,000 points before settling down a little lower. Obviously, mutual fund investors are thrilled by the turn of events, as most market pundits are giving thumbs up to the government move and believe it will change the course of the market positively.

“The government has delivered one of the biggest structural reforms. It provides a strong impetus for reviving the domestic investment cycle and companies paying the full tax rate will be re-rated because of earnings upgrade,” said Nimesh Shah, MD and CEO ICICI Prudential AMC. “It will give a boost to the ‘Make in India’ initiative of the government and help attract more FDI especially from companies looking to diversify their manufacturing base away from China. We see these recent developments as a very big positive for long term mutual fund investors since it will lead to revival of economic growth,” added Nimesh Shah.

Sorbh Gupta, Associate Fund Manager, Quantum Mutual Fund, also believes the tax cuts is a great incentive for companies to go for capex plans. “The economy is facing slowing consumer demand and crisis of confidence among lenders. We don’t think these problems will improve in near term as instead of giving instant bump up to consumption or shoring up confidence among lenders the government is trying long route of more investments and more structure growth improvement, added Sorbh Gupta.

Financial planners say mutual fund investors should not get carried away by the new-found vigour in the stock market. They caution investors to proceed carefully in an exuberant market.

Vishal Dhawan, Founder, Plan Ahead Wealth Advisors
Investors tend to make certain mistakes in such markets. The most common mistake is overdoing or stooping investments. My advice to them is to stick to asset allocation and not make changes to the portfolios at this point. Going overboard on equities in the hope of a bull run is not a mutual fund investor’s forte. Retail investors shouldn’t try to time the market. No one knows what the bottom of this market is.

Another thing that investors tend to forget in such a scenario is the valuation. If the market goes up constantly, buying more is not a great idea. Some investors invest more, start new schemes, which they should avoid. Investors should also keep in mind their short-term goals. Don’t move your short-term money to equity mutual funds to cash in on the market going up.

Thirdly, you have to give time to your investment. If you have started investing recently or a year or two ago, sit back. The policy changes and the decisions of the finance ministry will take time to come into play in the market. Don’t expect wonders in a week. Focus on your long-term goals.

Gaurav Monga, Director, PxG Consultants
Most mutual fund investors tend to move with the market sentiment. There are many investors who would be waiting for this rally to get out of their schemes. There are schemes that were in the negative and now that they would have earned some more, they would move out. It is a bad investment decision.

If you have a long-term goal, focus on that and not on short-term happenings in the market. Getting out at this point is timing the market and no one can do that. If your goal is retirement, the one-year correction or the two day rally in the market will average out in the long-term. If you feel like getting out of the market with positive returns, remember why you had started investing in the first place. Asset allocation is very important. Getting into an asset class at its peak is not great investing. To enjoy the returns in the peak market, you have to invest from the bottom to reap benefits.