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Are mutual fund investors getting adventurous? Some advisors think so

We talked to some financial planners and mutual fund distributors to find out whether they also face similar queries every day. Indeed, they do.

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Last Updated: Apr 03, 2020, 10.43 AM IST
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Questions abound. ETMutualFunds.com receives several queries like these every day. Most of the queries we receive on our official Facebook page deal with the hot topic of the conversation: how to get richer by using the sharp fall in the stock market. We have responded to most of these queries, you may see in our Ask the Expertsection. We talked to some financial planners and mutual fund distributors to find out whether they also face similar queries every day. Indeed, they do.

This is what a financial planner had to say about the behaviour of mutual fund investors these days. "Earlier, a fall of such a magnitude used to scare most people. Now, 80% of the people are not even bothered. But 20% are getting adventurous - they want to go bottom fishing. It is scary talking to them because they simply think the market is going to bounce back in no time. They are absolutely immune to the uncertainties in the global economy," he says.

Another mutual fund distributor says some extra adventurous investors are opening trading accounts to buy stocks that are available cheaper after the recent carnage in the stock market. He says even this group is convinced that the markets might recover in the next few months.

"We have been saying that Indian investors have gained maturity in the ciris of 2008. It seems, the way 2008 played out is giving a sense of false comfort to some investors. They take it for granted that a quick recovery follows every major fall. Hope they are not proved wrong," says a mutual fund advisor.

The point they are trying to make is we are at a juncture where nobody, including seasoned market experts, do not have a firm view on the likely recovery or when it will happen. As you have heard countless times in the past fortnight, the world is facing a totally new crisis - it has no experience dealing with such a threat. That too, of this magnitude. That is why everyone is using a lot of ifs and buts with their statements.

Simply put, it all depends on how and when the world contains the pandemic. We can move to the economic prospects after that. Then is the turn of the markets. So, the point is: don't be adventurous.

In the meanwhile, financial planners and advisors maintain that investors should first look at their personal finances before taking a call on tactical investments. Make sure you have adequate health insurance for you and your family. If you have financial dependents, you should also ensure that you have a large life insurance cover. Your next priority should be to create a contingency fund that would cover your living expenses for at least six months. If you have aged parents or small children in your family or face job threats, you should have emergency funds to cover at least a year's living expenses.

Once these things are in place, you may invest the surplus cash you wouldn't need for at least next five years in equity mutual funds or direct stocks in a staggered manner.
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