Mutual funds: how to change your investment strategy in a volatile market?

Mutual fund : Amid the stock market bloodbath caused by the Russian-Ukrainian war, equity mutual fund investors are busy finding investment tweaks that can help them save their money in this volatile market. According to investment experts, one should have a mixed portfolio of debt and equity with a pre-determined portion of the debt allocation to be transferred to equity in the event of a slight decline in the equity market. Similarly, once the volatility has passed and the market has stabilized, the part of the debt that was transferred to equity should be reduced to its normal ratio. They said equity mutual fund investors can benefit from such a volatile market if they have a diversified portfolio.

Speaking about the investment adjustments an equity mutual fund investor can maintain during volatile markets; Arun Kumar, Head of Research at FundsIndia, said: “The simple idea is to accept temporary declines and uncertainty as an ’emotional fee’ to pay for reasonable long-term returns. short-term market conditions are beyond our control, how we react to and profit from any sharp drops is entirely within our control, and that is exactly what we try to do by preparing and pre-loading our decisions for different market scenarios. This way, you can live with the typical 10-20 per cent downturns that the market throws at you without panicking.At the same time, the infrequent big declines that in hindsight turn out to be opportunities can also be mined in real time through Plan CRISIS seems like a great buying opportunity in hindsight, but it seems extremely risky when you’re in the middle of a war like Russia and the U kraine!”

Echoing the views of Arun Kumar; Prateek Pant, Chief Commercial Officer of Whiteoak Capital, said, “We believe macro is simply a source of random risk rather than an opportunity to add alpha. To prevent such random risks from diverting the team’s skill-based alpha, we maintain a balanced portfolio. construction approach at all times, while consciously avoiding any macro gambles like market timing or sector rotation or other top-down mishaps. It’s not that these top-down bets are always wrong. It’s just that they’re right as often as they’re wrong, no different from a game of heads or tails. On the contrary, in times of heightened uncertainty, we focus more on maintaining a tighter balance in the portfolio.

On how a balanced portfolio of diversified mutual funds can be used to take advantage of a volatile stock market; FundsIndia’s Arun Kumar said: “You have to decide in advance that part (Y) of your debt portfolio will be deployed in equities in the event of a sharp drop in the markets.” Arun Kumar gave a plan that one can implement when the markets go down:

1]If the Sensex drops 20%, move 20% of the Y share into stocks.

2]If the ESB Sensex drops about 30%, move 30% of Y into stocks.

3]If Sensex drops nearly 40%, move 40% of Y into stocks.

4]If Sensex drops about 50%, move the remaining part of Y to stocks.

On how to reorganize the equity mutual fund portfolio after a sharp drop in the markets; Jitendra Solanki, a SEBI-registered tax and investment expert, said: “Like debt allocation, you have to allocate the same part Y in large-cap stocks and move that part in the same way from large-cap stocks. to small cap, as it has been advised to move your money This practice is advised because during the market rebound, small cap stocks move faster than mid and large cap stocks and, therefore, mutual funds Small-cap investment funds are expected to outperform mid- and large-cap funds following the trend reversal in the short term.”

For a new investor, experts advised such investors to immediately invest the entire debt allocation and invest 40% of his allocated money to equity funds. Then stagger the remaining 60% through a 3-month weekly systematic transfer plan (i.e. STP).

Disclaimer: The opinions and recommendations made above are those of individual analysts or personal finance companies, and not of Mint.

To subscribe to Mint Bulletins

* Enter a valid email

* Thank you for subscribing to our newsletter.

Comments are closed.