Heres How To Tackle The Current Market Scenario

If you are a serious investor and follow an asset allocation method to decide the asset mix for your portfolio, you would typically have equity, debt, and gold in it. While asset allocation helps in diversifying your portfolio, each of these asset classes requires a different investment strategy to stay on course, advises

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors

It is always challenging for investors to keep their equity mutual fund portfolio on track during a defined time horizon. In the current scenario, the continued polarisation and volatility in the stock market remains a concern for investors. However, history tells us that investors who demonstrate patience and perseverance during turbulent times in the market get their due in the long run. In other words, a haphazard approach of either redeeming equity fund investments during market volatility or investing into them for making a quick buck is most likely to backfire.

The key, therefore, is to continue with your investment process uninterruptedly irrespective of the market conditions and ensure that certain basic principles of mutual fund investing are followed diligently. Considering that there is a high probability of the stock market becoming broad-based going forward, here are a couple of important investing principles which, if followed, can help you benefit from the emerging scenario.

Focus on Long-Term Performance

While it is natural to get affected by short or medium-term performance of the stock market, it shouldn’t influence your long-term investment strategy. Remember, volatility in the stock market is a natural phenomenon and hence you must be prepared to tackle it at all times. Fortunately, there are strategies like disciplined investment approach and having longer-term time horizon that can not only help you tackle volatility but also allow you to benefit from it through ‘averaging’. Investors often get disillusioned by negative returns of equity funds during turbulent times.

The fact, however, is that negative returns do not necessarily mean poor performance. Even the best of fund managers are likely to deliver negative returns during the periods when either the overall market or a segment in which the fund is invested doesn’t perform. Therefore, short-term negative returns, in line with the market, from a fund that has been doing well shouldn’t be a cause for worry. While we are likely to witness better and broad-based market performance in 2020, the volatility could continue for some more time. Hence, the key would be to keep your emotions in check and make rational decisions.

Reassess Selection Process

The right way to benefit from your mutual fund investments is to balance risk and reward. For that, you must know the type of risks you are likely to face over time. The major risk is fluctuations in the NAVs that can range from high to low depending upon the type of fund you are invested in. And that is the reason why identifying the right level of risk tolerance and the right schemes to suit it remains the most important factors in ensuring success from a mutual fund portfolio.

For example, if you are an aggressive long-term investor, your portfolio composition should be different from someone who may have a different time horizon and risk profile. Therefore, if you decide to invest in a sector fund, make sure that you have the risk appetite required for such an investment and that existing funds in your portfolio do not have a substantial exposure to that sector.

If you are not sure about the composition of your portfolio, it’s time to have a close look at it to ensure that it has the right balance and the mix to deliver improved performance not only in 2020 but also for many years to come.