The 2019 elections will undoubtedly influence the economic policies of the country and hence indirectly affect the investors. Undeterred by the results as an investor, you need to pay close attention to the economic developments.
The market in the next few weeks will show high volatility as polls, both opinion and exit begin to surface. The performance of the stock markets too is dependent on elections to some extent.
Of course, the final election results should give a clearer picture.
The arrival of elections often indicates volatility in the market and this can be misleading to novice investors. Industry experts, think otherwise, advising MF investors to hold their nerve and face it.
A long-term impact on markets due to elections is not right and an MF investor should always make use of the opportunities.
The Government’s efforts to encourage small businesses is hope for the favourable market capitalisation of growing companies. The small-cap is a winner for investors who are looking for a long investment plan. Since a significant correction has already happened in the midcap and small-cap segments, it is advisable for investors to buy the market.
What about SIP investors?
The long-term advantage of systematic investment plan (SIP) is the discipline and convenience of saving regularly while eliminating any action except the initial setup for SIP. Even though it’s a regular savings plan, it has its drawbacks like requiring a long commitment, quitting the plan can incur hefty sales charges and missing a payment can lead to plan termination.
Well, for existing SIP investors and for the ones who are waiting to start, the election can halt a few developments. But investors should never avoid SIP as it assures returns and
However, it all comes down to your risk-taking ability, and if investors have high-risk tolerance, they might often invest huge during these volatile situations. If the investor hits the right chord, then he will reap the benefits compared to SIP investors.
Before starting a SIP, it’s better to wait for the preceding two months to avoid any unfavourable outcome and instead think about lumpsum investment at lower levels which can return healthy profits in the future.
Choose the right sector and market cap funds
Some sectors can be attractive for investors while certain funds must be avoided as they can be susceptible to volatility.
Most experts observe that sectors like consumer discretionary, financial services, media and agrochemicals have given appreciable returns in the election run-up. Investors in small-cap funds or mid-cap funds are advised to stay invested and avoid selling their investments due to its short-term performance. In 2018, the mid-cap mutual fund category offered -13.68 per cent returns and the small-cap category returned -22.69 per cent. The mid-cap and small-cap funds tend to yield more when the market is going great, and the returns are average if the market is underperforming. Small-caps can be attractive provided as an investor you judge and be aware of its sustainability.
The share of small caps should not be more than 5% to 10 % of the entire equity exposure of the portfolio.
Being smart and watchful
A mature way to approach the elections on the investment front is to overcome losses and refrain from market exits.
MF investor in equity should focus on long term goals and stop taking hasty decisions. Investing in mutual funds based on the political situation in the country can backfire. SIPs should be untouched as they have the potential to give the desired results and are risk-free. A new government has to work towards critical sectors of the Indian economy like infrastructure, cement, automobile, capital goods, FMCG and other various industries to drive the Indian GDP growth.
Irrespective of whoever wins and forms the government, the primary growth drivers of the Indian economy will always remain the same.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of KredX (Minions Ventures Pvt. Ltd.).