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    Should new investors stop investing in risky sector funds?

    Synopsis

    According to mutual fund advisors, investors are getting nervous about volatility and they are not able to make up their mind about the future course of the market. The stock market lost heavily recently, but it also regained some of the lost ground. This has confused investors more.

    Are these schemes meant for new investors?iStock
    Mutual fund investors are extremely nervous about the current volatility in the stock market. Many of them, especially the new and first- time investors, are asking whether they should stop their investments in risky options like small cap schemes and sector and thematic schemes. Some investors are also asking whether they should stop investing in equity schemes. Read here.

    According to mutual fund advisors, investors are getting nervous about volatility and they are not able to make up their mind about the future course of the market. The stock market lost heavily recently, but it also regained some of the lost ground. This has confused investors more.

    In fact, the stock market had surprised investors soon after the onslaught of covid 19 pandemic. When everyone was expecting the market to lose heavily till it became clear about the impact of the virus on the global economy, the market bounced back. The bull run that followed soon after that prompted investors to embrace risk to make quick bucks.

    According to mutual fund advisors, investors should remember the basic rules of investing if they want to survive and make money in the stock market. You might have noticed the discussions on risk, volatility, asset allocation, among other things that started gaining momentum in the recent past. These basic principles of investing are likely to gain currency in the coming days.

    As for avoiding risky equity mutual funds, most of you would be familiar with why taking investment decisions based on prevailing or short term market trends could be a bad idea. Mutual fund advisors say it is futile trying to predict the market. You might be right sometimes, but you may also go wrong. A better way to examine your investment decisions based on your current financial situation. For example, if you can afford to continue with your investments and you can stay invested for another five years or more, you should not worry. If you are investing in risky and volatile options, you should give more time to them to perform. If you can’t give time, you should revisit your investments.

    That brings us to your investments in sector or thematic schemes. It is not possible to take a call on all sectors uniformly. For example, pharma schemes were traditionally considered a defensive sector before the industry was plagued by regulatory issues in the overseas market. Covid gave further boost to the sector. Similarly, IT got a major upgrade because of the pandemic. The sector was expecting to benefit majorly from the IT upgrade in a predominantly online world. Looking at the steady performance of the sector, many mutual fund investors were of the opinion that one can safely invest in these schemes.

    However, the current volatility is testing all these theories. According to value investors, valuations will become an issue at various times in the market. Investors should not get carried away with all new theories and pay attention to basics. However, it would be a mistake to believe that these sectors will not do well considering the basic investment premise still holds true. You can apply the same rules when it comes to investing in other sectors, too. However, you should not invest in them if you do not know why you are investing in them.

    The market - that means both your high risk investments and regular equity investments- is likely to be under pressure in the coming days. The interest rates are likely to go up this year. The liquidity conditions in the market may also be squeezed. It means easy money is not going to chase every stock in the market. Other major issues like Russian aggression or economic growth are likely to keep the market on a tight leash. If you are investing or invested in equity schemes, you can’t avoid the impact of these factors entirely. Don’t tweak your portfolio to avoid it as it would be futile.
    The Economic Times

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