Demonetisation effect: What should be your Mutual Fund Investment Strategy

With demonetisation wiping out considerable amount of wealth from stock market, the event and its volatile impact on stock prices may test the best of best investor’s patience.

Mutual fund investors however who have planned for long term investments need not shift their macro investment strategy however a tactical shift can be made keeping in mind the current downfall in the markets.

The current downfall in the markets which has bought the markets below 26000 levels for Sensex and below 8000 levels for Nifty suggests a correction of more than 10 per cent from its recent highs.

A tactical shift such as a slight increase in the asset allocation to equity for next six months where the markets are expected to trade sideways to negative can be a good idea.

Time and again it is proven that investment via systematic investment plan (SIP) is the best way to go ahead with equity investments. Indeed it is the events such as the demonetisation and US presidential elections that highlights the importance of investing in equities in SIP manner where an investor gets the benefit of buying more mutual fund units when the prices are low and vice a versa.

In long run the economy could see major gains from the bold move by PM Modi as GDP can only expand as the so called parallel or black economy will start getting accounted. The physical assets may become unattractive and financial savings will improve. The fiscal deficit may come down as Gold imports may be curbed in longer run.

The sectors that are truly affected in the short run viz., banking, NBFCs are the ones that will gain traction in the long run owing to the demonetisation. So MF investors can look at funds that are skewed towards financial sector with three to five year view.

The mantra for mutual fund investing is to invest systematically on monthly basis on regular intervals.