I remain 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 characterized by good investment opportunities for investors, while the latter is characterized by good investment returns for the invested. The window to do the former is usually far shorter and offers decidedly limited opportunities.
Now, the natural corollary of this is that if one does not utilize 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.
A question I have oft heard since March this year is whether it is 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?
My response has hitherto and for that matter, always in similar scenarios been -- 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) and SIP Top-Ups for retail investors.
While prevalent risks like the prolonged Russia-Ukraine conflict, volatile oil prices and US dollar exchange rate, flare-up of corona-virus cases in China and its fallout on the Chinese as well as global economy, the RBI having to eventually raise interest rates and poorer-than-anticipated quarterly earnings by Indian companies, all merit attention and respect, they are certainly not insurmountable.
But to expect them to disappear overnight would be unwise too as unlike the last few times, this time around the risks appear more sticky and seem likely to play out over a longer time frame. 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. Those in the wealth creation stage (younger investors) can be aggressive and accumulate the beaten down but time-tested small-cap and mid-cap funds, while those in the wealth consolidation stage (middle-aged investors) can accumulate large and mid-cap. flexicap and hybrid equity funds.
In the prevalent market scenario, there exists a strong case for building value and contra funds into one’s investment portfolio, while for lump sum investors, hybrid funds merit attention. In conclusion, whenever the market takes a vertical drop as one or more of the risk factors play up, remind yourself that you are a long-term investor and use the opportunity to gradually accumulate and top-up the earmarked mutual funds.
Of course, to follow the path suggested above, an investor must believe that the ongoing financial year is one for the Investor and not the Invested.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com