Right Strategy to Invest in Mutual Funds: There is a lot of ups and downs in the stock market these days. Not only the domestic market, but there is also such a stir in the markets around the world for the last few days. Talking about the market domestically, the Nifty is hesitating in the range of 11700 to 12000. During the last 3 days, there has been a huge fall in the market 2 times. At the same time, after the boom in global markets, profit recovery is being seen. In such a situation, the confusion of investors regarding equity mutual funds is not going away. Anyway, the pressure on the returns of most segments in the mutual fund market is not far away. Even in the last 5 years, there are very few funds among large-cap funds that have outperformed the benchmark.
Experts are assuming that there are some reasons at the global level, due to which the possibility of increasing market fluctuations has increased. There is pressure in the markets there due to the second wave of Coronavirus in Europe. The situation is not clear even in the US on the Corona left. Domestically, the earning season has not filled much enthusiasm among investors. There is also pressure on the economy at the domestic level. This fiscal year GDP is expected to remain negative. Experts say that in the current era, investors can choose the path of mutual funds instead of directly investing in equity. Asset allocation may be the best option for them. Apart from this, large-cap and large and midcap funds are looking better.
Asset allocation strategy
If investors follow the asset allocation strategy, they should invest in equity and debt funds based on their risk appetite. If the risk-taking ability is high, then there should be 80 per cent allocation in equity and 20 per cent in debt. At the same time, if the risk-taking ability is moderate, then invest 50:50 percent in equity and debt. But if there is a conservative investor, then this ratio should be 30:70.
The advantage of an asset allocation fund is that it allows investors to invest their money in assets such as equity, bonds, gold, commodities and cash. In this, the portfolio is automatically diversified, which reduces the risk.
It has been generally seen that investor confidence in large-cap funds remains in the ups and downs of the market. Largecap funds invest in companies that are well-capitalized. These companies can withstand pressure due to lack of capital. If you look at large-cap funds, generally in the long term most of the people get better returns. They are more secure than midcap and smallcap. If you are investing keeping in mind 5 years or more, then these schemes can help to make money in the long term without any major volatility.
Largecap mutual fund schemes invest in shares of extremely large companies. According to SEBI rules, for large-cap mutual fund schemes, it is necessary to invest at least 80 per cent of the funds raised from investors in the top 100 companies. They are more stable than small companies during market volatility.
Lodge and midcap
In the slowdown period, there is a weakness in equity, while in the recovery period, the mid-cap from Khasatour is seen. However, the market has become volatile after a good recovery. Nevertheless, investors can get some better returns compared to large-caps through large and midcap. Actually, these funds invest money in midcap companies, in addition to large-cap. The inclusion of largecap along with midcap in the portfolio reduces the risk.
Mid-cap equity funds can give strong returns, but they also have higher market risk. In such a situation, if investors have the ability to take more risk, they can see this segment. Before deciding to invest, you must assess your financial goals and risk-taking ability.
(Note: BNP Fincap’s director AK Nigam is also based on discussions)
(Disclaimer: Investing in mutual funds is subject to market risks. Before investing, check at your level or consult your financial advisor. Financial Express does not recommend investing in any fund.)