The sharp selloff in the Indian stock markets on Monday, March 2, significantly eroded investor wealth, prompting investors to rethink their portfolio strategies. The BSE Sensex crashed almost 1,050 points while the Nifty 50 closed 1.25% lower at 24,865 in today’s trade.
Overall, the bloodbath on Dalal Street amid the backdrop of escalating Middle East tensions on US-Israel-Iran war and the oil price spike wiped off ₹6 lakh crore from investor wealth. Mutual fund investors’ portfolios also bled amid the broad-based selloff.
Such a scenario often prompts investors to panic sell and tweak their portfolio strategies, but past incidents show that the impact of such geopolitical shocks is mostly short-lived.
What should mutual fund investors do amid US-Iran war?
In the context of a US–Iran war, mutual fund investors should stay anchored to long-term goals and avoid making reactive portfolio changes based on short-term market moves, said Nehal Meshram, Senior Analyst, Morningstar Investment Research India.
According to Sunil Subramani, a veteran fund manager, retail investors should never reallocate their portfolios after an event has already passed, as they will likely end up getting hurt. He believes that altering investment strategy in a falling market is akin to catching a falling knife, which will eventually hurt you.
The consensus view from analysts and fund managers remains that mutual funds are meant for long-term wealth creation, and tweaking strategies based on single events might not be the prudent approach.
Deploy spare cash in a staggered manner
Subramaniam further added that if you have the desired portfolio allocation to reach your goals, then stay put. But in case you are sitting on idle cash following profit booking earlier, deploy that money in a staggered manner.
Geopolitical risks have a one-week to three-month shelf life, and for investors, it would make sense to deploy 1% of that spare cash in their existing portfolio allocation, allowing them to take advantage of the rupee-cost averaging. He advised investors not to engage in guessing games and stick to their asset allocations.
Diversification is key
These views were also echoed by Morningstar analyst Meshram, as she also advised investors that during such periods, it is essential to stick to your long-term asset allocation across equities, debt, and gold.
“Diversification helps cushion shocks as debt instruments provide stability when equities face pressure, while gold can act as a hedge during periods of uncertainty. Most importantly, avoid panic selling from equities, as these often result in locking in losses right before markets stabilise,” she said.
Top MF strategies to pick
Market drawdowns also tend to impact small-caps more than larger stocks. The Nifty Midcap 100 and Nifty Smallcap 100 indices also lagged the Nifty 50 today.
Therefore, Meshram suggests adopting a more defensive tilt toward large-cap diversified funds and well-managed flexi-cap or multi-cap fund strategies to reduce downside risk. “Avoid taking excessive exposure to small-cap or narrow sector themes during such volatile periods.”
Lastly, Varun Gupta, CEO, Groww Mutual Fund, recommends allocating to Multi Asset Allocation Funds, for instance, allocate across equities, debt and commodities such as gold and silver.
This diversified exposure can provide a natural hedge during periods of heightened uncertainty, while still maintaining participation in equity markets for long-term growth, he opined.
AMFI data shows the growing popularity of such funds. Multi-asset allocation mutual funds attracted a record ₹10,485 crore in net inflows in January, emerging as the most-preferred bet in the hybrid space.
The inflows in the category in January witnessed a jump of 41% compared to the inflow of ₹7,425 crore. Yearly, the growth was recorded at 394% against an inflow of ₹2,122 crore, according to an analysis by The Economic Times.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.