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New investors should stagger their equity MF bets: Experts

New investors should stagger their equity MF bets: Experts

25 Sep 2021

Mumbai: Financial planners believe new investors should stagger their investments into equity mutual funds over a period of time using systematic investment plan (SIP) or systematic transfer plan (STP) into large cap funds or index funds.

Many new investors have entered equity mutual funds over the last one year. Data from HDFC MF shows that the mutual fund industry added 2.8 million investors between June 2020 and June 2021 with the total number of investors at 23.9 million. Many of these investors are starting their investment journey into equities.

Financial planners point out that many new investors have started getting interested in equity mutual funds because of the one-way rally of the stock markets since March 2020 with no significant correction in the last 18 months.

“Many investors who were earlier investing only in fixed deposits are entering equity mutual funds looking at past returns,” said Vijay Kuppa, founder of Orowealth, an MF investment platform.


There are many who feel they have missed out on the last 18 month rally where investors more than doubled their money on the Nifty 50 alone and are now coming with expectations of earning high returns in equity mutual funds, financial planners said. Such investors are not used to the ups and downs of the equity market and could be unnerved if the correction is sharp. Hence, they should stagger their investments, the planners said.

They pointed out that the markets are not cheap from valuations perspective. On March 23, 2020, the Nifty traded at a PE of 17.15 and a P/B of 2.17, while it now trades at a PE of 27.29 and P/B of 4.5.

“We have not seen a big correction since March 2020 and it’s just a matter of time before one comes in, and it could be sharp. By staggering your investments, you will have money remaining with you to buy at those lower levels,” said Harshvardhan Roongta, principal financial planner at Roongta Securities. He advises investors to stagger their investments over the next 12 months.

Wealth managers believe that first-time investors will be better off buying into large blue-chip companies, and should stay away from thematic funds, mid- and small-cap indices. That is because large companies have the capacity and financial muscle to weather any adverse environment and gain market share, while small companies could vanish or lose in a downturn. Also, small-cap funds could be driven more by liquidity and could be volatile if a sharp correction were to happen in the markets, experts said.

“First time investors would be better off opting for large-cap funds and index funds using SIPs,” Roongta said.

He recommends the Nifty 50 fund for first-time investors and asks them to come with a minimum time frame of five years.