LEADER SPEAK – MAR 2023

As we wrap up the financial year 22-23, it is pertinent that we take stock of how the year shaped up and what could be, hence, our plans for the next FY. The markets this year have been volatile and have operated in a challenging environment with high inflation, geopolitical uncertainties, steep interest rates, global banking crisis and outflow from overseas funds. It has, therefore, not been an easy year for investors and a lot of them have shown patience and maturity. The Sensex finished FY23 at 58,991, with a net gain of just 0.7 per cent or 423 points. Assets Under Management (AUM) of Indian Mutual Fund Industry as on February 28, 2023 stood at ₹ 39,46,257 crore. The growth story of the Indian markets and the mutual fund space has not been as flamboyant as the previous years, however, what has been remarkable is the steadfast growth in the trust of the retail investor in mutual funds.

Investors are maturing and trusting the SIP way…

The AUM of the Indian MF Industry has grown from ₹ 8.14 trillion as on February 28, 2013 to ₹39.46 trillion as on February 28, 2023 around 5 fold increase in a span of 10 years. Indian Mutual Funds have currently about 6.28 crore (62.8 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes. And the total amount collected through SIP during February 2023 was ₹ 13,686. The equity mutual fund space has seen net inflows in Feb 23, despite a volatile market, because of the maturity of the investors who have understood the Systematic Investment Plan (SIP) route. Investors are prepared enough on how to use the opportunity wisely when the markets are volatile. The consistent rise in SIP inflow is a positive sign as the retail investors realizes the volatility in the market essentially averages out their purchasing cost over a long investment tenure and they also don’t need to worry about how to time the market if they need to opt out of the SIP at any point in time.

So if you are sitting on the side lines and wondering what to do, here are some bits which might help you with your financial goal setting and planning.

Markets can be volatile – no use timing it! – Be prepared for volatile market and timing the market is not a wise thing to do. What one must ensure it to set one’s financial goals and then choose the asset allocation accordingly. One must also understand that when there is a downturn in the markets, there is usually an upturn round the corner. We now have multiple data points in the history which can help investors understand this. If we take the data from two of the significant downtrends in the Indian equity markets which happened in 2000 and 2008, we find that in both the cases investors would have had a big dip in their returns and negative returns on the 1 year horizon, however, in both the cycles in a span of approximately 5 years, generally their returns jumped back to decent levels. SIPs address this risk of market cycles as it gives you rupee cost averaging.

Staying focussed on Long Term Goals: Once we invest with a thought of long-term financial objective, it’s imperative that we stay invested despite the cycles in the market. Even if one is a first-time entrant in the market, one must realise that staying focussed on long term goals help, markets can recover fast and staying out may be losing out.

Performance of Equities as an asset class: As long as the fundamentals are looking good and the corporate sector is doing well which should be reflecting in their results, the equity markets should continue to outperform other financial asset classes.

Fixed Income Funds also come with some risk: Many investors have looked at alternate options from their traditional investment instruments and have hence, invested into debt mutual funds. Investors must understand that debt funds also carry risks like interest rate risk and credit risk which can affect the performance of the funds. They should be guided by their investment objectives and time horizon and set their expectations accordingly. Look at fixed income funds through the lens of asset allocation.

Matured investors are doing these simple things right:

• Financial planning and review: One should establish a goal or a milestone for which they are looking for investing. For eg., children’s education or retirement planning which are long term in nature. On the other hand, it may be a shorter-term goal like saving up for a vacation. They also practice the habit of reviewing their portfolio and take stock at regular intervals
• Financial planning based on financial goals: Each of these goals has a time frame and hence the investments must be made according to the time frame of the financial goal. A short-term investment can be good enough for a vacation kitty while a longer term SIP into a diversified equity fund may be a preferred option for a child’s education
• Asset Allocation and Diversification: Like the saying goes, don’t put all your eggs in the same basket. This saying is even more relevant for investments. Diversification into different assets classes not just mitigates your risk of being exposed to only one asset class but also helps you to reap the benefits of different asset classes

At HSBC Mutual Fund, we would like to thank each of our investors in showing faith and trust in us as we too have undergone milestones and changes this year. We hope you take the right learnings from the year gone by and use them wisely in the new financial year.

SET GOALS. REVIEW.BE PATIENT.

HAPPY INVESTING!

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Source: MFI Explorer, AMFI, HSBC Mutual Fund

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