Value Investing is dead was the oft repeated conclusion of investors who were being fed by commentaries of the investing community in early 2020. The conclusion was backed by not only short term performance data of 1 to 3 years performance but even looking at performance data of longer period of 10 years of value as style as compared to growth.
The investment horizon plays a vital role in investing. Talking specifically about mutual fund schemes, equity mutual funds may be more suitable for long-term financial goals. Equities may be volatile over the short term but carry the potential of wealth creation over the long term.
Not all asset classes have been winners consistently in the investing world since different asset classes may react differently to macroeconomic events. As such, asset classes like equities, debt, gold, real estate etc., tend to perform in their respective economic cycles.
While equities may perform better during periods of high economic growth, debt may perform better during periods of decreasing interest rate scenario. Similarly, gold may be a better performer when asset classes like equity and debt seem volatile and uncertain, as gold is considered a safer investment option.
When investing in mutual funds, one must choose the mutual fund schemes that best suit their financial goals and risk appetite. In addition, selecting the equity investments basis their market capitalisation is one of the selection criteria, as different market cap segments carry different risk-reward trade-offs.
When it comes to mutual fund investing, investors can choose between actively and passively managed funds. While both aim to provide market-linked returns to the investors, these funds tend to differ on many parameters.
It is always advisable to hold an emergency fund corpus to meet any life contingencies. Such emergency fund should be equal to at least six months' regular expenses one needs to incur, for it provides sufficient financial cushion for any unforeseen situation in life. While maintaining an emergency fund is often on the agenda of many households, many savers keep such funds in the traditional savings accounts.
One of the expectations from fixed income asset managers this time of the year is their annual forecasts on inflation, repo rate or government bond benchmarks. Forecasting typically involves answering the following question: “Given the data we see today, what will be the value of a variable at a period”. It is often said that forecasting exists to make astrology look good.
Green shoots in investor preference seen
The Reserve Bank of India's (RBI) monetary policy committee voted unanimously to keep the repo rate and reverse repo rate unchanged while voting 5-1 to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy.
Below are the key RBI’s estimates on evolution of growth/inflation trajectory into the next year compared to their previous forecasts:
We are currently in a phase of heightened market volatility led by a confluence of factors. Some of the ongoing concerns leading to nervousness in the markets are inflation remaining higher for longer, higher crude & gas prices and an accelerated rate hike cycle by the Fed. It hasn’t helped matter that the valuations around the globe have been higher than long-term averages. However, volatility is nothing new to equity markets and nor is anxiety around a set of factors which threaten to pull the markets down.
