Posted On Monday, Nov 14, 2016
An unexpected victory for Trump in the US presidency elections along with currency demonetization has added tremendous uncertainty to the current investment climate. While the result thus far has been considerable short-term disruption to markets, as always investors in India should remain patient with equities and take a long term view.
“Mutual Fund investments are subject to market risks” – this is a common statement for mutual fund investors. Risk and reward are two sides of the same coin. Reward on investment depends on two main factors: the Investor’s risk taking capacity and the condition of the market. Presently, market volatility is rising due to the unexpected US presidential election results and currency demonetization in India. Investors are waiting for political guidance from President-elect Trump which they hope will assist them in forming an investment strategy. Even with a spelled out plan from Trump, considerable uncertainty will remain over whether the new president will even stick to that plan, meaning further volatility is almost certain to follow.
On this note, let’s understand risk and rewards available for mutual fund investments.
Risks & Rewards - Integral Parts of investment
Globally, financial markets have been falling significantly since the US presidential election results. Investors are worried over the conservative and protectionist approach of the newly elected US President. During the campaign for elections Donald Trump said that he will be the voice of forgotten Americans. While that is quite a sensational statement, it is one of the major concerns for global investors. Fifty percent of the US Treasury market is owned by overseas investors (China 19%, Japan 18%). Aside from “Make America Great Again,” one of Trump’s more effective slogans during the presidential campaign was “America First.” Investors outside the US have reason to worry about what this means for policy – and by extension, the earnings potential of companies all over the world. Is America heading towards localization of trade and business policies? It’s a major concern for investors across the world and, as it gets sorted out by markets, is likely to spur additional volatility in global financial markets – including India.
Advantage – Mutual Funds Investors
The stock markets in India have joined their global peers in falling from prior peaks, so what are investors to think now? One thing domestic investors can use to assuage their concerns is that the economy should avail benefits from ongoing reforms. From a macroeconomic perspective, the Indian economy is in better shape than most advanced nations. India's GDP growth rate 7.3 %( Q2 FY 2016-17) is the highest in the world and, notwithstanding the short term setback from demonetization, is still on a long term growth path. Other than GDP, inflation and fiscal deficits are in check. Above all, political stability is an added advantage.
As momentous as the passage of GST was for Indian markets, PM Modi’s November 8th demonetization announcement carried at least equal headlines. AS you’re all familiar, the currency demonetization in India is the first step towards a cashless economy. Today banks are holding piles of cash which have been deposited, resulting in a reduction in lending as well as deposit rates. Despite restrictions on withdrawal having added pressure on banks to keep deposit rates deposits, this trend is likely to continue for the near term. As annoying as it is for the millions of us with bank accounts, it is good news for borrowers as lending rates are falling. In fact, our fixed income fund manager expects a further fall in the repo rate.
Banks have started cutting interest rates on deposits. The trend is likely to be continue. The time has come to consider new avenues for investments. With the background of falling rates on deposits, investment in mutual funds - particularly liquid and balanced funds - has the potential to deliver competitive returns on investments. Despite the recent volatility, India remains an attractive long term investment destination for global investors due to stable and progressive economic growth. Though past performance of the fund is not a guarantee of future results, historical asset class performance can at least be considered for analysis and observations. It is always advisable to invest money where returns are competitive and risk is relatively known.
Whatever the turmoil in global markets, the current fall in stock markets has provided an opportunity for long term investment. Buying in at lower valuations instead of higher valuations is always preferable, if you’re capable of taking the long term view. The competitive economic environment of India along with a progressive political agenda holds the potential to deliver competitive returns on investment, even despite massive changes in store for the world’s largest economy.
Whatever your preference as far as alternative destinations for your deposits which are rapidly earning lower returns, at Quantum Mutual Fund we funds focused on equity, debt and gold, across the risk spectrum. See below to find a fund which could suit your investment needs, then click here to invest.
The graph below is only for illustrative purposes only and shows the theoretical placement of asset class funds on a risk-return parameter. Please consult your financial advisor and invest as per your risk appetite.
Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.
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