Hyderabad: The COVID-19 pandemic has created much confusion among investors who have put their money in mutual funds. A study conducted by an IIT-Hyderabad professor has found that investors need not panic and pull out their money from mutual fund investments, including both debt and equity funds. Even though there is a certain amount of volatility in the mutual funds sector due to the COVID-19 crisis, the study suggested that small investors may shift from Systematic Investment Plan (SIP) to Systematic Transfer Plan (STP).
What are SIP and STP?
In SIP, money is transferred from a bank account to equity mutual funds, while in case of STP money is transferred from a debt mutual fund to an equity mutual fund. The study recommends short-term investors to distribute their money among different mutual funds instead of withdrawing them altogether.
While a debt mutual fund is an investment in fixed income structures like government or treasury bonds, an equity mutual fund invests in private companies and stocks making it considerably risky. Equity funds, though risky, have the potential to offer higher returns, whereas debt funds offer stable but moderate to low returns.
Further, the study, while warning about the volatility of the mutual funds industry, assured mutual fund investors that as long as the net asset values of their investment do not die out in the ongoing quarter of the financial year 2010-21 they have no reason to panic.