As 2020 draws to a close, the Nifty, Nifty Midcap 100 and Nifty Smallcap 100 are up 14.9%, 21.4% and 21.9 % respectively for the year. More importantly, the Nifty is up 83% from the March lows. This is a spectacular rally. Equity mutual funds enjoyed the rally as well with equity mutual funds giving up to 76% returns in 2020. In fact, mid and small caps which remained laggards in over two years in a row, turned around to become the best performers as the rally became broad based. Should mutual fund investors book profit or continue investing while the markets are on a record breaking spree?
Mutual fund advisors believe if your goals are approaching in the next two years, you may start withdrawing now.
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“In case your goal is just two years away, it would be wise to gradually start withdrawing money so as to safeguard against abrupt correction in the market at the exact time when you need money. Still the withdrawals should only be done gradually. This can be done so as to complete the process of liquidation of your goal linked investments by the time your goal arrives,” says Balwant Jain, a tax and investment expert.
For those whose goals are more than two years away, should continue with their investments through systematic investment plan (SIPs), says Balwant Jain.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, says it is hard to predict how the market will behave in 2021. The twists and turns in the pandemic, the vaccine, recovery in growth & earnings, the coming budget, monetary policy, the monetary stance of the Fed…. all will influence and impact the market. For mutual fund investors, it is important to continue with SIPs in a market like this. “Recent trend of declining SIPs is undesirable,” he adds.
For those who want to invest lumpsum amount in mutual funds may go through the systematic transfer plan (STP) route over the next 12 to 18 months, and those who wish to start fresh SIPs may do that now, say mutual fund advisors.