The month bygone witnessed lot of uncertainties, in both macro and micro fronts. FIIs were net sellers on the back of rise in FED rates. News of possible default on bonds by a non-banking finance company led to violent swings in the equity market in the past few days. Rising oil price, widening CAD, depreciating rupee, pose a serious concern to the sentiments in the markets. In such times, investors should not only stay calm and steer clear of the noise and volatility but also should look at the long term and stay invested. Going forward, I am sure the market would rebound on the back of the upcoming festivities such as Dussera, Diwali and Christmas.
Fixed income market does go through volatility due to interest rate movement as well as credit migration to both upgrade and downgrade cycle. While these movements create volatility in the fixed income market, as well as for mutual fund fixed income schemes, fixed income has the unique component of interest accrual and price movement of the portfolio. Over time, risks such as the above nature get nullified due to the diversification of the portfolio and ongoing mark to market impact among other things. As it happens, in any other investment, one has to keep a close watch on such risks and keep managing them efficiently. With respect to our exposure in IL&FS, our investments are to the specific IL&FS operating business units which are backed by strong cash flows with a clear ring-fencing to take care of the interest and principle repayment and the current turmoil in IL&FS group shouldn’t hurt the prospects of our credit exposures. We remain vigilant and are continuously monitoring our exposure. Impact for investors would be limited, given the nature of our investment of lending to the operating units with a clear cash flow backing, through an escrow mechanism.
As I always say, during these 25 years of mutual fund existence in India, the only thing that is constant is growth and apt regulatory changes. As you all know, the TER slab structure has been revised after a gap of about more than 20 years, which emphasizes the need for reviewing it. It was felt that the need-of-the-hour was to pass on the benefits of economies of scale to the investor. Over the years, the industry has also matured and grown enough to absorb these changes. While I agree that there would be some concerns on the ban on the up-front commission model, I am sure the trail commission model would ensure a lower churn rate and would be helpful in the long run for all the stakeholders in the industry. I am also happy that the regulator has aptly carved out an exception for SIPs for the upfront commission, which would ensure further retail penetration. With these regulatory changes and the current scenario, I would recommend investors to not only continue their Systematic investment i.e. SIP’s but also Top-up/Step up their SIP’s.
Stay invested and committed to your financial goals!
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.