US Election 2020: The approach retail equity mutual fund investors must adopt

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Complex yet captivating, the US Presidential Elections have always generated a keen interest among the masses. Much before the results are declared, debates as to what will India gain or lose from a particular candidate’s victory start doing rounds.

While it’s an open secret that the race for the Oval Office has a significant impact on world politics, stock markets are no different.

To put it otherwise, the Presidential elections of the world’s oldest democracy affect investors’ sentiment and market movement(s).

In a year when markets have witnessed heightened volatility, what should be the approach of retail equity mutual fund investors, should the results elevate uncertainty? Let’s find out.

Don’t Bet on Speculations

For mutual fund investors, it’s best not to bet on speculations as to whose Presidential term would prove to be a boom or bust for the markets. Yes, the hangover of the election results will be there for some time, and it may lead to uncertainty for a few weeks or even months.

This, however, should not deter you from focusing on your goals and most importantly remain committed to your investments.

In fact, the uncertainty gives you the opportunity to buy more units at a lesser price and benefit from rupee cost averaging.

When mutual fund NAVs plunged in March with markets witnessing steep cuts, those who continued their SIPs were able to accumulate more units in their schemes. A quick market rebound has added significantly to their wealth.

Adopt a Long-Term Approach:

While it’s true that election markets can be pretty volatile, the quantum comes down significantly when you have a long-term approach. Investments made for long-term goals such as children’s higher education and retirement will not have much impact due to short-term volatility.

Block noises and continue with SIPs to accumulate the desired corpus earmarked for these goals. It’s time such as these that often bring out the worst of investors’ behaviour, one of which is timing the market.

A move that can prove disastrous, and hamper returns, it’s best to follow the tenets of asset allocation and diversify investments.

Do remember that time in the market is more important than timing the market.

Avoid Lump Sum Investments

In the current market scenario, it’s best to avoid lump sum investments in mutual funds and adopt the SIP route. The best antidote to volatility, SIPs help you remain invested across market cycles.

Also, given the current market levels, a correction can’t be ruled out, and SIPs find their true utility when the markets nosedive.

You can also look forward to investing in balanced advantage funds which dynamically shift between equity and debt as per the prevailing market conditions.

This dynamic management enhances gain during a bull run and preserves it during bearish phases.

Summing it Up:

It is difficult to forecast how will a Donald trump or a Joe Biden victory impacts the markets, but it is clear that that mutual fund investors don’t need to do anything differently.

Focusing on goals coupled with having a long-term outlook and sticking to the principles of asset allocation can help them ride choppy waters with ease.

(Rahul Jain is Head Edelweiss Wealth Management)

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.