For Samvat 2081, the focus of investors should shift to capital preservation rather than chasing high returns, especially in the mid-cap space. As volatility is expected to persist in the year ahead, hybrid funds such as multi-asset allocation funds will be a suitable option for those seeking stability.
Stagger bets in mid-caps
In Samvat 2080, mid-cap funds have given the highest returns of 42% amongst all equity-oriented funds followed by small-cap and large-cap funds. However, investors should exercise caution as the mid-cap space has become expensive with valuations stretched, making the risk-to-reward ratio less favourable. “Large-cap funds, known for their stability, may offer better downside protection in case of market corrections. Balanced or hybrid funds can also offer a more conservative approach,” says Anirudh Garg, partner, Invasset PMS.
Those willing to invest in mid-cap funds should do so in a staggered manner. This approach allows them to observe market movements and adjust their investments accordingly. “It is important to avoid lump-sum investments, especially in volatile segments like mid-cap or small-cap. Instead, investors should space out their investments over time, says Soumya Sarkar, co-founder, Wealth Redefine, an AFMI registered mutual fund distributor.
Amongst other equity-oriented funds, individuals should consider investing in flexi-cap funds. These funds have given 34% returns in the past one year and around 19% over a 5-year period.
In Samvat 2080, multi-asset funds have reported stellar returns. The diversification offered by multi-asset funds can help cushion against market swings while allowing for moderate growth potential.
“Investing in multi-asset or balanced funds can provide a hedge against volatility,” says Anand K Rathi, co-founder of MIRA Money.
Diversify, book profits
Diversification across asset classes will remain crucial to mitigate risks and ensure portfolio stability. While this strategy may not appeal to investors seeking high growth, it can be beneficial for those who struggle to cope with market volatility. To handle volatility, investors should take a very dynamic approach and change asset allocations from time to time.
Amit Goel, co-founder & chief global strategist, Pace 360, says individuals should invest in large-cap and mid-cap funds for the next few months and then book profits if the markets go up smartly. “Once the investors are able to book profits in equities they can invest 25% of the money into long duration fixed income, 55% into short term fixed income, and balance 20% in gold over the next three to four months,” he adds.
Gold has given its best year-to-date returns of 33% and the expectation of further Federal Reserve rate cuts this year and the geopolitical tension in West Asia could keep the prices of the metal high. Investing in gold ETFs is a good option for those who don’t want to hold physical gold and should form part of a diversified portfolio.