Mutual Funds

Should mutual fund investors worry about 2019 elections?

The general election may be around six months away, but some mutual fund investors are really concerned about it. They are bombarding mutual fund advisors and managers with questions like these: `Should I make changes to mutual fund investments.’ ‘What should be my investment strategy in view of the coming elections.’

“What should be my investment strategy ahead of the elections is the most common question we get from our retail investors, whenever we interact with them around the election time,” says Sorbh Gupta, Associate Fund Manager- Equity, Quantum AMC.

The general elections are scheduled to be held around April-May 2019 for the Lok Sabha. Mutual Funds decided to take a look at the market trends around a few previous elections to find out whether the mutual fund investors need to alter their investment plans ahead of elections. We looked at the BSE Sensex data for six months around the election time for the past five general elections held in 2014, 2009, 2004, 1999 and 1998.

Here is what we found: The market moved up during three elections in 2014, 2009 and 1998. In fact, in 2009, the market saw two upper circuits in a single day after the election results were announced. The election results in 2004 and 1999 pulled the stock markets down. The benchmark index fell by 11 per cent on the day election results were declared in 2004.

Irrespective of whether there was an upward or downward trend, the Sensex chart remained highly volatile during the election time.

No wonder, mutual fund managers and advisors ask investors to not alter their investment strategies ahead of the elections.

“General elections are supposed to happen every five years. And, since 1980, in last 34 years till 2014, we have seen all kinds of governments, including mixed governments and absolute majority government. Average GDP growth stood at around 6.2 per cent over last 34 years. And, if we keep that expectation in mind, elections do not matter much,” explains Sorbh Gupta. “If our country grows at around 6 per cent every year, which government is ruling, does not matter much,” says Gupta.

Most mutual fund advisors and financial planners point out that the country has gone through all kinds of disturbances, including unexpected election results, depreciating rupee, trade wars, crude prices going up and so on. They say elections might act as temporary dampener or boost sentiments in the short term, but in the long term, investors need not worry.

“Long term investors need not worry or change their strategy due to the general elections in 2019. Investors must follow a disciplined approach and stick to their asset allocation. But due to high volatility, this is not the right time to invest a lumpsum,” says Pankaaj Maalde, a certified financial planner.

“If an investor is looking at six per cent (average GDP growth over 34 years) plus four to five per cent inflation, we do not see this as a difficult growth rate to achieve. Any good company can grow over country’s GDP,” says Gupta.

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