COVID-19 Crisis: Time to review and rejig your portfolio

October 27, 2020 2:05 PM

Post the sharp ally in equities perhaps valuations aren’t cheap anymore and also, the uncertainty of COVID-19 is still looming large over us. Thus, it could be time to review and rebalance your portfolio.

Sukanya Samriddhi Yojana, SSY, guaranteed return, Mutual Funds, features, benefits, risk, equity fundsFor the first time since 2017, venture investment has literally collapsed with a number of deals falling below the 100-mark at a tad over 90 in September.

It’s nearly half a year since the COVID-19 pandemic gripped markets and economies across the globe. Though economies across the globe suffered the wrath of the virus, markets in India and across the world have galloped by 35-40%, bouncing back from the March lows. Mutual funds too have recovered decently after slipping sharply four months ago.

Post the sharp ally in equities perhaps valuations aren’t cheap anymore and also, the uncertainty of COVID-19 is still looming large over us. Thus, it could be time to review and rebalance your portfolio.

The portfolio pie

In the current scenario, it is best to have something of everything, depending on your age, risk appetite, income and other factors. A balanced portfolio will have a judicious mix of equity and debt. Based on risk appetite, here are three model portfolios.

If you are an aggressive investor, it would be largely equities in the portfolio. However, it would be advisable to increase exposure to large-cap mutual fund schemes (close to 60-65%) with the rest in select multi-cap and mid-cap mutual fund schemes.

The choice is more difficult for investors with moderate and conservative risk profile due to pretty low yields on the fixed income instruments currently. Thus, it becomes essential to have some exposure to equity or other alternate asset like gold to provide some boost to the blended returns of your portfolio.

Consequently, we would advise close to 20-25% exposure to hybrid funds along with 8-10% exposure to gold ETF for moderate risk profile investors whereas the conservative investors could limit their exposure to hybrid funds and gold to 15-20% range only. The rest of the allocation in both the cases could be to mix of short term fund / high quality credit risk funds along with PSU / bank bond funds.

Investors with moderate risk profile could also look at high quality debentures (NCD; AA+ rated) to an extent of 10-12% of their portfolio allocation.

Keep some Cash too

Though the conservatism of the early COVID-hit months has receded a bit, it is always better to keep some proportion of your savings as cash to battle contingencies. Moreover, this cash reserve can also be used to take hold of good opportunities to invest in quality stocks in a staggered manner for the long run.

Savour the power of compounding

In volatile markets, prudent asset allocation and the power of compounding work together to get you the best returns in the long timeframe. Compounding returns seldom move away too much from the mean return clocked by the markets. Moreover, following the systematic plan approach also offers you the benefit of rupee cost-averaging when the markets are volatile you earn more units, whereas the value of your investment goes up when the markets do well.

Stay invested, don’t panic

Last but not the least, the bottomline is to stay invested in the markets and not time it in terms of entry and exit. You must remember that the markets always bounce back, as seen during previous crises. Overall, one should bear the big picture in mind and keep an eye on opportunities for wealth creation, given that the Indian economy is now set to touch the $5-trillion mark, perhaps by 2026-2027.

(By Gaurav Dua – SVP, Head Capital Market Strategy & Investments, Sharekhan by BNP Paribas)

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