Investing in a Falling Market: Strategies to navigate this testing phase

Synopsis

Equity mutual fund investors face a market downturn. Wealth managers suggest lumpsum investments for those with long horizons and risk appetite. Reviewing portfolios for diversification is advised. Investors with loss-making thematic funds may consider trimming and reallocating to diversified options. This period offers opportunities for strategic financial decisions.

The drop in value of equity mutual funds sparked by the 10% drop in Nifty over the last month has unnerved investors. Many are now grappling with a familiar set of questions—should they invest a lumpsum, top up SIPs, or restructure portfolios and move out of loss-making schemes? A look at how investors could navigate this testing phase.

CAN INVESTORS WITH SPARE MONEY MAKE A LUMPSUM INVESTMENT INTO EQUITY MUTUAL FUNDS NOW?

Wealth managers say lumpsum investing at this stage needs to be seen in the context of valuations and one’s own risk appetite. Nifty’s Price to Earnings (PE) ratio—a key valuation measure—has corrected to 19.7 times from 24.4 in September 2024. Fund managers point out that sub-20 levels have historically been seen as “fair” levels for long-term entry, with further declines seen as making it more conducive to invest. So, investors with a time horizon of over five years—and the ability to ride out near-term volatility—can consider putting some money to work now. That said, a staggered approach may be more comfortable. For instance, deploying about 30% now and spreading the rest over the next few months. Another option is to park funds in a liquid scheme and start a daily or weekly Systematic Transfer Plan (STP) over about six months. This way, the money continues to earn 6–7% while gradually moving into equities.

Best MF to invest

Looking for the best mutual funds to invest? Here are our recommendations.

View Details »

IS THERE A NEED TO RESTRUCTURE PORTFOLIO NOW?

Financial planners say this may be a good time for such investors to step back and review their portfolios in line with their risk appetite and long-term goals. Those heavily tilted towards one asset class could look at diversifying across equity, debt and other assets. Many have built portfolios by chasing recent winners— ending up with concentrated exposure to gold, silver, or narrow thematic funds. Similarly, investors with SIPs in thematic funds may want to move towards more diversified options, such as large-cap index or flexi-cap funds. Those who are already well-diversified and aligned to their goals can largely ignore the noise.

WHAT DO INVESTORS DO WITH THEIR LOSSMAKING SCHEMES?

Live Events

Investors with a time horizon of over seven years can continue with diversified equity funds and look past short-term volatility. However, if a significant portion of the portfolio is in thematic or sectoral funds— especially beyond the intended allocation—it may be worth reviewing. Adding more money to average such positions may not be advisable. If exposure is high and beyond one’s risk tolerance, investors could consider trimming these positions and reallocating to diversified equity funds, where fund managers have the flexibility to invest across a broader set of opportunities.

(Catch all the Mutual Fund News, Breaking News, Budget 2024 Events and Latest News Updates on The Economic Times.)

Subscribe to The Economic Times Prime and read the ET ePaper online.

...moreless

(Catch all the Mutual Fund News, Breaking News, Budget 2024 Events and Latest News Updates on The Economic Times.)

Subscribe to The Economic Times Prime and read the ET ePaper online.

...moreless

Accenture is pressing the AI pedal. What’s stopping Indian IT then?

HDFC Bank chair exit: Widening rift or a new beginning?

AI is reshaping lending, and why it’s bad news for traditional banks

Why gold volume is plunging in GIFT City when prices soar

SaaS faces an AI shake-up. An opportunity for Indian IT?

Weekly Top Picks: These stocks scored 10 on 10 on Stock Reports Plus

1

2

3