The general election 2019 is around 6 months away, but many mutual fund investors actually are very much concerned about it. They’re bombarding the mutual fund managers and advisors with several questions like: `Do I need to make any changes to my mutual fund investments or what investment strategy should I make for the upcoming general elections 2019?’ “What my mutual fund's investment strategy should be ahead of elections is one common question that we get from the retail investors, when we interact to them around election time. General elections are to be held from April to May 2019 for Lok Sabha.
Kotak Mutual Funds have decided to have a close look at the SIP plans around some previous elections just to know whether mutual fund investors have to alter the investment plans before elections. We looked at BSE Sensex for 6 months around election time for past 5 general elections that were held at 1998, 1999, 2004, 2009, and 2014.
Here’s what we have found: The mutual fund market moved up in 3 elections in 1998, 2009 and 2014. Actually, in the year 2009, the market saw 2 upper circuits in one single day after election results were declared. Election results in the year 1999 and 2004 pulled down the stock markets. Benchmark index fell down by 11% on a day election results got declared in the year 2004.
Regardless of any upward and downward trend, the Sensex chart remained very volatile during election time. There is no wonder, the mutual fund advisors and managers ask the investors not to alter the SIP plans and strategies ahead these elections.
The general elections will happen in every 5 years. And, from 1980 to 2014, we have actually seen all types of governments, which include absolute majority government and mixed governments. The average GDP growth also stood at over 6.2 percent over 34 years. Suppose we keep this expectation in mind, and then elections don’t matter much to your SIP plans. Suppose our country grows to about 6% every year, then which government rules, doesn't matter much.
Most of the financial planners and mutual fund advisors point out that our country has actually gone through all types of disturbances, which includes the unexpected election results, trade wars, depreciating rupee, crude rates going high and more. They say that elections may act as the temporary dampener or improve sentiments in a short term, however in a long term, the investors do not have to worry about their SIP plans.
The long term investors do not have to worry and change the strategy because of general elections of 2019. Investors should follow the disciplined approach to their SIP plans and stick to the asset allocation. However, because of high volatility, it is not the right time to actually invest lump sum. Suppose an investor wants at 6 percent (GDP growth above 34 years) and 4 to 5 percent inflation, we don’t see it as the difficult growth rate you can achieve in your SIP plans.
Thinking of investing in the mutual funds and build the retirement corpus, here’s what you need to know.
Conditions in which SIP Plans will yield good results
The SIP plans will ideally yield you positive results under the following conditions:
Bull and Rising Market: SIP plans will yield good results in either a rising or bull market as each new purchase, though made at the higher rate, is valued at a higher price. But, like seen earlier, in this case, it will be good to buy a whole investment lump sum instead of "averaging upwards" through SIP plans.
Volatile market condition: SIP plans must finally perform very well in the volatile but bull or rising market. It will be a market kind where "rupee cost averaging" will work very favorably for an investor as volatility will lead to the possible average price. Final increase or the bull market will make sure that an end price will be higher than an average price.
The market in the Median range corrects any downwards and moves up: It will be a case where SIP plans will perform very well and looking at all conditions better than the initial lump sum SIP investment. It is because an investor can get the help of an intermediate correction for "lowering his cost".
However, does it mean that SIP plans works in all market conditions? Possibly No. Let’s now check the market conditions in which SIP plans will not work. Thus, it is proved beyond any doubt that the SIP plans may not always be the best investment route. Thus, it is better we move forward and check out when will it be an ideal time to invest via SIP plans or when only buy this lump sum.
Final Verdict
The SIP plans work on a principle of the regular investments as well as brings the power of compounding ahead. This removes uncertainty and tensions from the investment plan just by making it the mechanical boring procedure. It inculcates a habit of savings and doesn't encourage speculation or timing of the markets. These are all accepted and correct facts.
However, do not forget that SIP plans are just one method of investing in the mutual funds, it is the vehicle, not a final destination - it might pass through the bumpy roads or straight road – but it will lead you to the destination is the lesser or at times higher time period - and sometimes this might also not lead you towards your destination just by derailing your SIP plans. SIP is a method to get on to your investment vehicle and reach your destination – suppose vehicle you select is incorrect – then whichever way you get in- there’s less chance of reaching to your destination. Thus, next time when the mutual fund or financial planner or distributor tells you that the SIPs are the safest route of investment in the equities then keep in mind they aren’t telling lies – it’s the safest route not for an investor but for own selves.
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