Mutual fund.. an investment option available in the financial market which most of the retail investors are made to trust. Mutual fund has been promoted by Association of mutual fund in India (AMFI ), saying “mutual fund sahi hai”, has gain huge success, which only shows the positive side of the mutual funds.
Depending on one’s need, every individual looks for a suitable mutual fund, which will help him/her achieve his financial goals through his /her investment. It is true, that mutual fund does give return and a good return. But we must understand one thing it’s an investment vehicle which ultimately put in their money into the stock and debt market of the economy. So just like financial markets, even mutual fund is prone to systematic risk(Risk which can’t be avoided, which is inherent to the entire market.).
In the recent past on 1st feb, When Mr. Jaitley tabled his budget, and imposed 10% long term capital gain tax on above Rs100,000 of gain from share trading along with the same, government also imposed 10% tax on distributed income from equity-oriented mutual funds. So this step was definitely unpleasant for the market. This imposition of tax is a systematic risk, which even the best of the best portfolio manager can’t avoid.
This imposition of 10% tax has proved to be a curse for the market, since 1st Feb 2018, Nifty has lost almost 757 points from the opening of 1st Feb of 11044.55 till the day’s opening level of 10288. However, our minister says, that fall in the market is not due to LTCG tax, but for the fall in international market. Whatever may be a reason, this recent fall in the market had hit hard to the retail and institutional investors.
Fall will definitely play its impact on Equity mutual fund scheme. With experts predicting Nifty to cross 11K mark by year end, though it has already crossed the said level, but this kind of blood bath in the market which is expected to continue can take the Nifty towards the level of 8800 again, thus investing in mutual fund equity scheme will definitely not be viable in the current fiscal.
On the other hand, debt market has been rising thus making equity bleed. India’s 10 year bond yield has risen above its average level of 7.455% to 7.568%.The same story is going in the international market as well. Dow Jones dipped in blood in the early trading hours of market; it is the highest fall in the entire history of the market subtracting 1175 points on the other hand, Japan's Nikkei index plunged 4% S&P/ASX 200 in Australia dropped 3%.
Fall in Dow Jones is amid spike in 10-year Treasury yield, which moves opposite price, spiked to a four-year high of 2.85%, from the opening level of 2.4% in 2018.
A higher and continuous rise in bond yield is making investment in stock market less attractive, thus pushing the stock markets down. Looking at the Indian scenario, further rise in bond yield, may force investor to withdraw funds from the market, thus reducing liquidity. A fall in liquidity will poke investor to park their money into the debt market. So, debt market is expected to perform better than the equity market for the current fiscal year.
Debt oriented mutual funds are more valuable in the current financial year is very much relevant in numbers. Look at the return of past one month, on an average large cap equity oriented mutual fund has given negative return of 2% , where as debt oriented mutual fund, for the similar time period , has give 0% return. But the point to note here is that Debt oriented mutual fund might have not given any return, but it has not reduced your investment.
So, looking at the present scenario, it is advisable to put in your hard earn money in mutual fund but into the debt oriented funds.