Investing in mutual funds can help investors build a diversified portfolio quickly, but the investment pattern needs a disciplinary approach. Investors, mostly the younger generation, are buying and selling schemes without putting much research into the process. To create wealth through SIP investments, a tenure of a minimum of 5 years is recommended. The average life cycle of an SIP in an equity fund is 2.5 years. But things are rapidly changing, DP Singh, Deputy Managing Director & Joint CEO of SBI Funds Management said.
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Talking about the investment trends among young investors who are trading in short-term investment tools, Singh said young investors should delve deeper for more gains.
“Youngsters are putting money for a very short period. At present, the market is moving on one side. So even when they are putting money in for 6-8 months, they are making profits currently. But this will not happen all the time. The moment they will burn their fingers when the market turns, these people will regret their decisions. We want these investors not to learn the lesson the hard way. Therefore, investors should be properly educated on the pros and cons of the market,” Singh told BTTV in an exclusive interview.
He further said that investors need discipline to get better returns from the market. SBI Mutual Fund is India’s largest fund house by assets under management (AUM).
“My advice is to be disciplined and sound in your investment goals. Don’t put your money in an equity fund with a short-term goal. Last few years, short-term investments have been positive, but things might not be the same in the future. We have seen negative cycles in 2000 and 2008. So, we don’t want people to have bad experiences and expectations. We want people to remain invested and not get into riskier assets for short term,” Singh said.
Singh also mentioned the outflow from equity funds in recent months. Equity mutual fund, which saw five consecutive months of net outflows, finally changed the pattern and surged to Rs 19,932 crore in the month of October versus Rs 13,857 crore in September, as per Association of Mutual Funds in India data.
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In July, open-ended equity mutual funds recorded a 12 per cent decline in net inflow to Rs 7,626 crore as large-cap funds saw a serious outflow on the back of market volatility.
“Outflows are due to two reasons. Some people feel fatigued with the SIP process and feel as they have got good returns, they can book profit and enjoy a bit on the sidelines. People start investing when the markets go down again. Another major issue is withdrawal from the debt category of funds. Post the tax law changes and indexation benefits, people are now taking out their money and investing in alternate asset classes. Withdrawal from the debt funds is huge,” Singh added.
Debt mutual funds experienced net outflows for the second consecutive month in September 2023 to the tune of Rs 1.01 lakh crore, compared to the Rs 25,873 crores witnessed in August.
Liquid funds, known for their flexibility and safety, were particularly hard-hit in September. A total of Rs 74,177 crore exited these funds, a significant jump from the Rs 26,824 crore in outflows recorded just a month earlier.
Credit-risk funds continued to face a challenging environment, marking their fifth consecutive month of outflows, amounting to Rs 314.9 crore. In August, these funds experienced outflows of Rs 270.8 crore.
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But in October, debt funds witnessed inflows amounting to Rs 42,634 crore in October after almost two months. Liquid funds saw the highest net inflow of Rs 32,964 crore in October as against the net outflow of Rs 74,177 crore in September.
