Better days are ahead of us. Difficult days are ahead of us. We will experience both and come out resilient in both. That is how I choose to start FY 20-21.
Last year has been a mixed bag of debt market challenges, equity market bull runs driven by a few stocks and then an unprecedented global scenario, which is in continuum currently.The mutual fund industry AUM has moved from around 24 lakh crore in March 2019 to 27 lakh Crores in Feb 2020. While it closed at around 24 lakh crore in March 2020 in an unprecedented environment, one must look at these numbers in perspective.
In times like these the industry takes pride in the fact that we have been able to service our customers and keep the operations on in such challenging times. SIP book and number of folios which stands at approximately 8.8 crore as on Feb 2020, is an indicator of growing confidence in the industry by new investors and the regular investors also have shown a lot of maturity in the testing times.
The debt market has also seen challenging times with some large names in the industry defaulting on payments, which made the investors get into experiential learning about credit risks associated with debt funds.
It is perhaps the most unprecedented circumstances that pushes one to go to basics. Asset allocation is one of those basics of investing which we strongly recommend to every investor at this juncture.
- For Contingency:
It is crucial for every individual to allocate funds in asset classes which are liquid and give you a 3 -6 months contingency. In these testing times, when keeping a company operational was probably the biggest challenge, Banks and Mutual Fund Industry have kept the wheel moving and the MF industry, in specific, has proved that funds, in the most difficult time, can also be liquidated and cashed out for contingency. And we have served to prove this point.
- For long term financial goals:
Allocate funds for long terms goals and this is where equities, especially through the SIP mode of investing, should be a part of the asset classes that you invest in. Markets are cyclical in nature. Equities have, by far, been the most rewarding asset class over a long term horizon, which helps in wealth creation. SIPs give you the benefit of buying units across market cycles and hence the term, rupee cost averaging.
- Allocate in Debt oriented instruments:
It is in times like this, when people who have over allocated in equity realise that it is not prudent to liquidate their equity investments at a loss; but as they do not have sufficient debt allocation, they have no choice but to liquidate equity, to meet contingency. Hence, it is crucial to have allocation in a mix of debt instruments ranging from Bank deposits, PPFs and definitely fixed income mutual funds, which are also very liquid. Please, always be aware of the risk associated with the credit quality of the fund or the deposit that you are getting into, as there is always a decision making that needs to happen around the trade-off between returns vs credit quality.
This is also a time for reflection on how financial asset classes are more efficient than other asset classes, as they have leveraged technology to give seamless customer experience and customer convenience.
In conclusion, would like to wish everyone safety and good health. Please take care of yourselves and your loved ones. Please follow protocols of cleanliness and social distancing, like we are practicing as individuals and as an organisation. Stay invested, keep investing and stay on course.
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