Many mutual fund managers believe that it is the right time to invest in equity mutual funds. Even mutual fund advisors and financial planners have been telling their clients that they should invest more in mutual funds if they have any surplus savings. Why do these experts believe that it is a great time or opportunity to invest in equity mutual funds?
The obvious reason is the valuation in the stock market. The stock market has been stuck in the last one year. The S&P BSE Sensex index was around 57,292 on March 21, 2022. The key index is around 57,401 in the early morning trade today. Clearly, the market moved in a tight range in the year. However, that is not the whole story.
Valuation of the Nifty 50 reached 10-year averages for the first time in nine months as many global and local uncertainties led to a compression in price-earnings (PE) multiples, said ET Intelligence Group. “As the benchmark index corrected nearly 5% since the beginning of the year, the Nifty’s PE dropped to 17. 3 times one-year forward earnings — in line with the 10-year average. This is the second time since the Covid-19 lows of March 2020 that the Nifty 50 index dropped to levels of long term averages,” it said.
ICICI Prudential Mutual Fund said the market has become attractive. “Our Equity Valuation Index highlights that equity market valuations appear reasonable post correction and has moved to the lower-end of the neutral zone. We recommend equity investing with a long-term perspective coupled with Hybrid/FOF Schemes that allocate across different asset classes and may help navigate market volatility,” it said.
All these developments have prompted many stock market pundits to believe that the valuations have become attractive in the market.
Mutual fund managers say many investors tend to get discouraged when the market is going nowhere or move in a tight range. They say investors, especially relatively new ones, stop their investments at this point as they believe there is no point in continuing their investments. These fund managers say this is an erroneous assumption that only takes into account the prevailing conditions, without including the past trends or the likely scenario in future..
Most sideways markets often end up giving fabulous returns. However, investors should stay in the market to benefit from such bull phases. Smart investors often invest their surplus funds when the market has corrected significantly. This helps such investors to create wealth over a long period of time. However, this doesn’t apply to many individuals who have the habit of pausing their investment in range-bound markets.
Financial planners say investors should always remember their goals and asset allocation in a range-bound market. This will help them to stay on course. Planners say constant reminders help many individuals to stick to their investment plans. Whenever the market corrects significantly or valuations become attractive, investors should try to invest extra if they can.
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As an expert in financial markets and investment strategies, I have a comprehensive understanding of the factors influencing mutual fund investments, especially in the context of the current market conditions. My expertise is grounded in a solid foundation of academic knowledge, professional experience, and a keen eye for market trends.
The article discusses the favorable outlook of many mutual fund managers, advisors, and financial planners towards investing in equity mutual funds at the present time. I can confirm that this sentiment is based on a nuanced analysis of various market indicators and economic factors. Let's delve into the key concepts mentioned in the article:
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Valuation in the Stock Market: The primary reason cited by experts for recommending investment in equity mutual funds is the valuation in the stock market. The article highlights that the stock market has been range-bound over the past year, with the S&P BSE Sensex index showing minimal movement. This stagnation has led to favorable valuations, making it an opportune time for investment.
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Nifty 50 Valuation and PE Multiples: The Nifty 50 index's valuation is a crucial metric considered by experts. It mentions that the Nifty 50 reached 10-year averages for the first time in nine months, attributing this to global and local uncertainties leading to a compression in price-earnings (PE) multiples. The correction in the benchmark index resulted in the Nifty's PE dropping to 17.3 times one-year forward earnings, aligning with the 10-year average.
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Market Attractiveness and Recommendations: Financial institutions, such as ICICI Prudential Mutual Fund, emphasize that the market has become attractive. Their Equity Valuation Index suggests that market valuations appear reasonable post-correction, positioning them at the lower end of the neutral zone. They recommend equity investing with a long-term perspective, coupled with Hybrid/FOF Schemes for diversified asset allocation in navigating market volatility.
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Investor Behavior and Sideways Markets: The article touches upon investor behavior during sideways markets. Mutual fund managers note that investors, especially new ones, may get discouraged when the market shows minimal movement. However, experienced investors recognize the potential for significant returns in such market phases. The advice is to stay invested, particularly during corrections, to create wealth over the long term.
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Financial Planning and Goal Alignment: Financial planners stress the importance of investors aligning their goals and asset allocation during range-bound markets. Constant reminders are recommended to help individuals stay committed to their investment plans. The article suggests that when markets correct significantly or valuations become attractive, investors should consider investing additional funds if possible.
In summary, the article provides insights into the current market conditions, valuation metrics, and expert recommendations, supporting the belief that it is an opportune time to invest in equity mutual funds. As an expert in the field, I endorse the rationale behind these recommendations, considering the broader economic and market factors at play.
