Uncertainty has embroiled equity markets in recent times. Domestically, corporate earnings were running behind stock valuations as consumption growth slowed. Globally, tariff uncertainty, a weaker rupee, persistent FII outflows and escalating geopolitical tensions all weighed on markets. The result has been a period of both time and price correction in equity markets. Looking ahead, while the domestic growth environment remains robust and stock valuations have cooled off, factors such as US central bank policy, US trade policy, choppy FII flows, ongoing conflicts and their impact on commodity prices will keep markets volatile.
This backdrop highlights how much of what affects our equity investments lies beyond our control. Yet, it also nudges us to focus on what we can control and to execute them effectively.
· Save regularly
Market conditions may vary but staying disciplined and saving remains within our control.
· Stay invested for the long term
Markets can be unpredictable in the short term, but over the long-term investors can ride out volatility and enjoy the benefits of compounding.
· Use Systematic Investment Plans
SIPs can help investors stay disciplined about our investments, avoid trying to time the market and benefit from rupee cost averaging.
· Choose the right investment vehicle
Mutual funds which are regulated, research-backed, professionally managed, liquid investment vehicles can be a good choice to navigate the ups and downs of stock markets. But while “mutual funds sahi hai”, figuring out which mutual funds are truly “sahi” can be challenging for investors.
Different equity mutual funds take exposure to different segments of the stock market – large, mid and small. Historically, these market segments have performed differently based on prevailing market conditions. And in turn, large cap, mid cap and small cap funds which invest in them too have seen differing performance. Thus, in order to pick large cap, mid cap or small cap funds for one’s portfolio, one needs to have a view on which underlying segment is expected to do well. This requires one to track market developments, understand how these developments can influence different market segments and dynamically adjust portfolio to take advantage of these developments. This is not easy for most investors.
What if you could outsource this responsibility to a Fund of Funds (FoF) that invests in diversified equity funds across market capitalizations? The fund manager of such a FoF continuously tracks markets, assesses market drivers and takes research-backed tactical exposure to large, mid and small cap funds based on their relative attractiveness.
· Maintain a diversified portfolio and rebalance timely
Here too, a Fund of Funds can prove useful because they invest in multiple equity funds across the large, mid and small cap space, providing diversification with one single investment. They are also more efficient rebalancers as they use well-defined frameworks which reduce emotional and behavioural biases that can hinder the ‘buy low, sell high’ approach. Importantly, rebalancing within the fund does not trigger taxes for the investor, allowing more of their capital to remain invested.
In a time where equity investing is fraught with uncertainties, this strategy allows investors to focus on what is in their control – saving regularly, having a long investment horizon and starting a SIP in a FoF that specializes in dynamic portfolio construction across market capitalizations, provides one-stop diversification and rebalances with discipline and tax efficiency.