Investor Q&A: Are high mutual fund inflows dangerous?


Q: I came across this article recently and wanted to know your thoughts on this-

The-dangers-of-high-mutual-fund-inflows

Ans:
It is a good article as far as crunching the past data is concerned but there is little guidance as to the future. As per the article: "it’s anybody’s guess when the tide might turn". So, even the writer is not sure of timing of the outcome. At best, it is a qualified guess. This is a type of market timing, which is very difficult (if not impossible) to do.

In my opinion, your decision of investment should not be dependent on the events happening in the market as they always keep happening - like elections, GST, Brexit, Trump, Demonetization and so on. Since, these events are not in your (or anyone's) control and thus your decision to invest (or not to invest) can't be based on such events.

The best way to make investment decisions is to focus on achieving your financial goals eg Retirement. You can describe it as Rs. 5 crores in 20 years. Now, this goal is for long term and whatever savings you can allocate for this goal should be invested for this goal. This way, you control your decision to invest (or not to invest) and get financially free! :)

Now, let’s assume there is a crash in the market, then SIPs will help you buy equity funds at lower prices and then the average purchase price of your investment will come down. This helps in better returns in the future when the market recovers.

I would advise you to follow goal based investing method with proper asset allocation between equity and debt funds as computed from your risk profile and period of the goal. This advisory comes automatically for your goals in Goalwise.

By the way, no one can predict the stock market crash but a goal based investing process can protect you from such market crashes.