How beginners should invest in mutual funds with coronavirus as the backdrop

Investing in mutual funds in India is always a good bet even with the coronavirus pandemic in the backdrop. There are various types of financial mutual funds and other mutual funds investment plans that are currently available although you should adopt a definite strategy towards investments in these tough times. There have been two key developments worldwide, namely the spread of coronavirus and the global oil price meltdown. These have led to higher volatility in global equity markets along with declines. India is not immune from these developments as well. Experts from any mutual fund company in India will tell you that volatility will continue in markets until the second wave is fully under control worldwide. Equity market valuations have also become more enticing owing to recent corrections in markets. The multi-year low thresholds of P/E (price to equity) and P/B (price to book) ratios are also the icing on the cake.

However, beginners at this time should invest in the mutual fund market in a staggered and well-planned manner. They can deploy tools such as the SIPs or systematic investment plans along with STPs or systematic transfer plans. The former will help them build a sizable corpus over a lengthy time span while inculcating financial and investment discipline simultaneously.

At the same time, STPs will help in volatile markets. Financial advisors should be consulted on mutual fund returns¸ current market conditions and the way forward for investments. It should also be noted that the industry witnessed the addition of close to 8.1 million new portfolios for FY2020-21 which was higher than the 7.29 portfolios added in FY2019-20. This came despite the pandemic and clearly indicates the faith of investors in securing their financial futures with mutual fund investments.

Here are some tips that new investors should follow in the current scenario:

• New investors should invest on the basis of overall risk appetite. Investing in equity funds in crisis times, when the market is falling, may lead to the portfolio indicating losses. Those with lower risk appetite may end up panicking in these circumstances. A careful understanding of risk appetite is needed before investing in mutual funds investment plans.
• Rebalancing is another good option for beginners who have already built a portfolio. Scale up investments in mutual fund plans with lower risks while reducing exposure in high risk categories.
• Do not opt to become completely immune from risks in the present scenario since you may forego the scope for buying mutual fund units when NAVs stay at considerably lower levels presently.
• You should consider low-risk funds if investing for a shorter duration and make sure that these are comparatively free from concerns regarding volatility. Consider ultra-short term funds or liquid funds in this scenario.
• If you have an investment horizon for the medium term or 1-3 years, then emphasize on short term debt funds.
• For long-term investments, i.e. more than 3 years, you can invest in equity mutual funds.
• You can opt for SIPs to stagger and spread out risks in these tough times instead of making a lump sum investment.