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Markets near all-time high: Five things retail investors must know

Markets may remain volatile and first-time retail investors might end up buying stocks at astronomical prices and fail to book profits in the short to medium term.

business Updated: Apr 28, 2017 13:49 IST
Raj Kumar Ray
Investors look at the indices outside Bombay Stock Exchange.
Investors look at the indices outside Bombay Stock Exchange.(Reuters photo)

Indian share markets are at a dizzy height with the Nifty crossing past the life high 9,300-level while Sensex crossing the magic 30,000-mark on Wednesday.

But markets is sliding since Thursday tracking global factors.

After the initial euphoria is over, will the Indian market sustain the rally?

Many retail investors have in the past got the timing wrong in investing in equities and lost money.

Markets may remain volatile and first-time retail investors might end up buying stocks at astronomical prices and fail to book profits in the short to medium term.

Experts suggest retail investors should opt for systematic investment plans (SIPs) in equity schemes of mutual funds as stocks may rise further while debt schemes may not yield high returns.

Here are five things retail investors should know:

1. More savings, higher investment

The average yearly income of Indians has grown 10.2% to Rs 1.04 lakh during 2016-17.

With rising income, Indians are saving more money. Investing in a particular stock or a handful of stocks could be risky for first timers.

With tax incentives and potential for higher returns over a longer term, mutual funds are looking attractive.

After demonetisation, a significant amount of household savings moved to financial assets.

Moreover, investors in smaller cities are on the rise.

Latest data collated by Association of Mutual Funds in India (AMFI) show Indians have invested over Rs 5 lakh crore in various schemes of MFs during 2016-17, an annual growth of 37.6%.

Still, the total investment in mutual fund schemes in India is just 12% of the size of the economy measured in terms of gross domestic product (GDP), which is much below global average of 55%.

2. Retail investors’ investing more in mutual funds

The value of assets held by individual investors in mutual funds increased by a whopping 38% to Rs 8.52 lakh crore by March 2017.

The share of retail in the mutual fund industry inched up to 45.9% in 2016-17, from 45.4% a year ago.

Investment by companies and institutions in mutual funds rose 35.9% to Rs 10.05 lakh crore. Their share fell slightly to 54.1% from 54.6%.

3. Small investors have greater risk appetite?

Retail investors appear to have greater risk appetite as they invested 60.6% of their money in equity-oriented schemes, 34.6% in debt schemes and close to 4% in money market schemes.

In contrast, companies and institutions parked just 9.2% in equity schemes, 48.5% in debt and 38.2% in liquid schemes.

4. Take a SIP

Retail investors often end up buying mutual funds at the end of the fiscal year to save taxes. Markets may at a high at that time of the year and hence limit the extent of returns.

Instead of a bullet payment, investors must consider Systematic Investment Plans (SIP) of mutual funds--a small amount is invested every month or quarter--as it helps in spreading the risk over a period of time and ensuring a decent return no matter how the market behaves.

SIPs also help build up a savings discipline.

At present, 40% of SIPs are invested in equity related schemes.

So far, about 1.35 crore SIP accounts have been opened.

5. Future prospects

In recent times, mutual funds have gained in strength on the back of robust inflows, and are playing a crucial role in moving the Indian stock market.

Foreign brokerage CLSA says India’s mutual funds manage $270 billion in assets, of which $90 billion is in equity schemes.

“Healthy inflow and market returns aided doubling of asset under management (AUMs) over three years and we see 17% compounded annual growth rate over the next five years to $600 billion,” it said.

The Sensex and the Nifty scaled record levels due to a combination of domestic and international factors.

Among the domestic factors, India’s economic growth potential has improved on expectation of faster reforms.

Foreign funds are pumping in billions of dollars in Indian market as they are convinced about the country’s growth prospects especially after Niti Aayog drew up a vision for 8% average annual growth in the next 15 years. India’s growth slowed to 7.1% in 2016-17 from 7.9% in 2015-16.

Faster growth will improve earnings of companies and their share valuations as well.