Reported by: banking|Updated: December 11, 2019
The volatility across the investment asset class has made investors rethink their investment strategy. Whether it is a stock market, company bonds, realty market, or any other investment product, the return stability is missing everywhere. However, there is a broader consensus among the investment experts that mutual funds still allow better return opportunity, flexibility, and safety to every class of investors in comparison to direct investments in equity or debt-oriented products. The question that investors ask is mostly related to the current market situation. They want to know about things they should keep in mind when investing in mutual funds in the current market so that they can achieve their financial goals.
In the current market, the investor needs to be very patient and they should focus just on achieving the financial goals – neither more nor less. Let’s find out critical things that investors should focus on while investing in the mutual funds in the current market.
Invest through installments, i.e. SIP mode
Systematic Investment Plan (SIP) is an all-weather tool to invest the hard-earned money. It allows an investor to reduce the risk and get the benefit of rupee cost averaging. Especially if somebody wants to invest for a long-term purpose, then it can significantly reduce the risk and give a very good return irrespective of market volatility. The SIP mode works more efficiently when the market is volatile. The investors can use SIP mode to invest in both equity and debt-oriented funds.
When one invests a lump sum amount in mutual funds immediately followed by a market fall, it may induce panic, and the investor may want to exit the fund. On the other hand, if the investor uses the SIP mode to invest in a mutual fund, a fall in the market allows him the opportunity to buy more units at a lower NAV.
Diversify the investment
In a volatile market, investors must not put all their funds in a single asset class or with a single mutual fund AMC. The best way to invest in the current market situation is to diversify your fund across different asset classes and across different mutual fund companies. You may take more exposure in equity than debt or vice-versa depending on your risk appetite but avoid investing the entire fund in debt scheme or equity scheme. While diversifying investment, it is also essential to keep your financial goal in mind. So, it is better to select a different mutual fund scheme according to its short and long-term benefits and in sync with investor’s financial goals.
If you are an existing investor in a mutual fund, then it is time to rebalance your investment portfolio. If, according to your financial goal, you would have decided to invest 50% in debt and 50% in equity, then due to downward correction in the stock market and stable debt market, your portfolio structure would have changed to 80% debt and 20% equity. Skewed portfolio structure may spoil the chances of achieving the financial goals as it changes the risk-return prospects. So, in the current market situation, investors should focus on rebalancing their portfolio by increasing or decreasing exposure in a particular asset class to reinstate the original portfolio structure designed to achieve the short and long-term financial goals.
Finally, some people stop investing the money as they panic when the market becomes volatile. Stopping the investment can have a severe impact on one’s financial goals. If you have any confusion or doubt related to investment, then immediately consult a qualified investment advisor to find the solution before it is too late!
Ravi Jain is chairperson, JRK Group (www.jrkgroup.in) The author is not a SEBI registered advisor or a financial adviser. The article is for educational purposes only and do not constitute specific financial, trading or investment advice.