Worried about market peaking? 3 things first-time equity MF investors can consider

The stock market is drawing hordes of new believers, disillusioned with other asset classes like real estate and gold. While benchmark indices continue to make fresh highs, the pace of uptrend has moderated of late. Rising geopolitical risks and muted growth expectations have tempered expectations of global money managers. Back home, the spate of farm loan waivers and the teething problems expected on GST are keeping investors jittery.

First-time investors may find it difficult to bite the bullet given the uncertain environment. “Stick to your asset allocation while investing. If you are investing in equity mutual funds, take the systematic investment plan route to avoid timing risk,” says Himanshu Vyapak, Deputy CEO, Reliance Nippon Life Asset Management.

Large caps and Hybrid Fund

“Large cap diversified funds or balanced funds make a good entry point for first-time investors,” says Amit Trivedi, Founder of Karmayog Knowledge Academy. Large-cap funds invest in shares of large companies that can withstand tough times. Balanced funds invest 75 percent of money in shares and rest in bonds. “First-time investors should consider investing in balanced funds or focused large-cap funds as they are less volatile as compared to mid-cap funds,” says Renu Pothen, head of research, FundSuperMart.com, a mutual fund distribution platform. If the markets turn volatile after you invest, mid-cap funds can add to your worries due to the possibility of large losses, she points out.

If you are a senior citizen or a conservative investor and want to invest in stocks, consider investing in equity saving funds.

SIP, SIP and SIP only

Trivedi says, “Start investing through a systematic investment plan. Design it in such a manner that you will invest a sum in equity mutual funds to the extent your asset allocation prescribes.” Once you reach your asset allocation limit, review your portfolio before proceeding further. Avoid lumpsum investments in equity mutual funds, as it exposes you to timing risk. Going overboard with any other asset class, including stocks, does not help, say investment experts.

Say no to sector or thematic funds

There is a tendency among new investors to check what has given the highest returns in the recent past and go with it. For example, banking sector funds on an average have given 12 percent returns over last three months. That may make one consider investing in banking sector fund. But experts advise otherwise. “Sectoral funds are cyclical in nature and introduce high risk in portfolio,” says Renu Pothen. She advises avoiding sectoral and thematic funds if you are investing in equity mutual funds for the first time. Go with funds that have no such sectoral biases, prefer pure-play large cap funds, she reiterates.

If you are investing in equity mutual funds for the first time, it makes a lot of sense to take a calculated risk by investing in large-cap equity funds or balanced funds through systematic investment plan. But do ensure that you will have an investment time-frame of more than five years.