Market participants with strands of grey hair instinctively know that all is not hunky dory at the bourses, when seemingly out-of-breath optimistic cherubic visages make way for drooping moustaches with doomsday predictions on the Idiot Box. So then, is it time to salvage one’s bleeding Mutual Fund Portfolio, pack up and shift lock, stock and barrel to the eternal favourite in troubled times, the good old Fixed Deposit?
Now, that is a question I have oft heard since September this year. My response has hitherto been this: Far from it, there may well be a case for a calibrated ramp-up of investments in equity and hybrid mutual funds, assuming one’s anchor debt investments are in place. In the parlance of mutual fund investors, the same translates to Systematic Transfer Plans (STPs) for high net worth investors, and Systematic Investment Plans (SIPs) for retail investors.
I am a firm believer that most financial years serve investors in one of these two ways at the bourses — a year for investors or a year for the invested. To elucidate, the former is characterised by good investment opportunities for investors, while the latter is characterised by good investment returns for the invested. The window to do the former is usually far shorter and offers decidedly limited opportunities.
Now, this presupposes that if one does not utilise the opportunities in the year for making investments, then one is unlikely to be able to partake of the rewards, as the invested, in the years of good returns. Clearly then, investing is a win-win situation, albeit only for those with a long-term investment perspective and the ability to take calibrated risks.
While prevalent risks like volatile oil prices and US dollar exchange rate, the US-China trade war, the Government-RBI standoff, concerns in the NBFC space, poorer-than-anticipated Q2 earnings, an uncomfortable P/E multiple and the probability of political upheavals next month, all merit attention and respect, they are certainly not insurmountable.
But to simply wish them away overnight would be foolhardy too. In such a scenario, what should the investment strategy of investors be in the equity mutual fund investment space? For starters, stay put with the core component of your investment portfolio, assuming the holdings there were purchased with sound reasoning and it still remains part of your long-term investment strategy based on your financial objectives.
The rejig, if necessary, could be undertaken in the dynamic component of your investment portfolio. Investors whose advisors have lightened their equity allocation earlier this year (well, they should have) and parked the proceeds in liquid funds can now re-enter equity via the STP route. Those in the wealth creation stage (younger investors) can be aggressive and accumulate the time-tested small-cap and mid-cap funds, while those in the wealth consolidation stage (middle-aged investors) can accumulate large-cap, large and mid-cap and multi-cap funds.
In the kind of market scenario we are in, there exists a strong case for building value and contra funds into one’s investment portfolio, but for lump sum investors, hybrid funds merit attention. In conclusion, whenever the market takes a nosedive as one or more of the risk factors play up, just ask yourself if you are a long-term investor — Is this a financial year for the investor or the invested? The answer could be your best guide.
(The author heads LKW-INDIA and writes at www.cricinvest.blogspot.com)