According to Ms. Swati Kulkarni, EVP & Fund Manager, UTI AMC, investors can build investment through SIP and STP in equity mutual funds in a staggered manner in these uncertain times, against a lump sum investments.
This pandemic has put an abrupt halt to economic activities as many countries, including India, had to enforce a lockdown. People can see experiences of other countries relaxing the lockdown and re-tightening it again after the number of COVID-19 cases increased.
The exit from the lockdown would be calibrated on the specific region’s experiences, which brings in uncertainty about the timing and pace of recovery.
The vaccine will reportedly take at least 10-12 months to come to the market. Thus, uncertainty around COVID-19, its impact and earnings releases are bound to keep equity markets volatile. However, after the correction, at 18.5 times trailing P/ E multiple, the valuation is at attractive levels compared to historic range.
The financial goals, investment horizon, liquidity needs and risk tolerance vary from person to person. Hence, the portfolio allocation among different asset classes should also be person-specific.
One may get some guidance from our UTI Multi Assets Fund, which allocates funds among Debt, Equity, and Gold assets based on the equity allocation recommended by the proprietary model. This fund has seen an increase in allocation to equity assets to the maximum permissible level (as per the mandate) of 80 percent in March 2020. This allocation in January 2020 was only 45 percent. The increased allocation underlines the attractiveness of the valuations of the equity market. UTI Mastershare and UTI MNC fund predominantly invest in companies with the strong competitive franchise. Such companies are often referred to as companies with wide economic moats.
They generate consistent cash flows, have low leverage and leading market share with pricing power or cost advantage, and generate a high or improving return on capital employed.
Ms. Kulkarni believes that such companies are wealth creators and sources of alpha over the long term. The investment philosophy of the UTI Dividend Yield Fund is to invest in companies quoting at high dividend yield and where the dividend pay-out can increase with growth in earnings.
This framework helps in buying cash-rich companies willing to return cash flows (through dividend/buyback) to the shareholders consistently along with the possible capital appreciation with earnings growth.
Advice to the mutual fund investors by Ms. Swati Kulkarni, EVP & Fund Manager, UTI AMC –
Focus on your financial goals; the disciplined investment is the mantra to meet those goals rather than letting the fear deterring you away from the destination.
There have been many instances in the past 28 years where the market corrections have lasted for more than three-four months and have been deeper too but the patient investor who stayed invested has eventually made strong positive returns.
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