Home / Money / Personal Finance /  Mutual funds: How to tweak your investment strategy during a volatile market?

Mutual funds: Amid bloodbath in stock market caused by Russia-Ukraine war, equity mutual fund investors are busy finding out investment tweaks that can help them save their money in this volatile market. According to investment experts, one should have a mixed portfolio of debt and equity with pre-decided portion of debt allocation to be shifted towards equity in case there is bit fall in the equity market. Similarly, once the volatility is over and market gets stabilized, that portion of the debt that has been shifted to equity should be brought back to its normal ratio. They said that equity mutual funds investor can get advantage of such volatile market if they have a diversified portfolio.

Speaking on investment tweaks that an equity mutual funds investor can maintain during volatile markets; Arun Kumar, Head of Research at FundsIndia said, "The simple idea is to accept temporary declines and uncertainty, as an ‘emotional fee’ to be paid for reasonable long term returns. While the short term market moves are not in our control, how we respond and take advantage of any sharp falls is completely under our control. This is exactly what we attempt to do by preparing and pre-loading our decisions for different market scenarios. This way you are able to live with the typical 10-20 per cent decline tantrums that the market throws at you without panicking. At the same time, the not-so-frequent large falls that in hindsight turn out to be opportunities can also be taken advantage of in real time using the CRISIS Plan. Every market decline looks like a great buying opportunity in hindsight, but seems extremely risky when you are in the middle of one like Russia-Ukraine war!"

Echoing with Arun Kumar's views; Prateek Pant, Chief Business Officer at Whiteoak Capital said, "We believe that macro is merely a source of random risks rather than any opportunity to add alpha. To prevent such random risks from hijacking the team’s skill-based alpha, we maintain a balanced portfolio construction approach at all times, while consciously avoiding any macro bets such as market timing or sector rotation or other such top-down misadventures. It is not that such top-down bets are always wrong. It’s just that they are right as often as they are wrong, no different than a game of coin flips. If anything, during times of heightened uncertainty, we increase our focus on maintaining a tighter balance in the portfolio."

On how a balanced diversified mutual funds portfolio can be used to get advantage of a volatile equity market; Arun Kumar of FundsIndia said, "One should pre-decide a portion (Y) of one's debt portfolio to be deployed into equities in case there is big fall in the markets." Arun Kumar gave a plan that one can implement in case of falling markets:

1] If the Sensex falls by 20 per cent, move 20 per cent of of Y portion into equities.

2] If BSE Sensex falls by around 30 per cent move 30 per cent of Y into equities.

3] If Sensex falls by near 40 per cent, move 40 per cent of Y into equities.

4] If Sensex falls by around 50 per cent, move remaining portion from Y into equities.

On how to rejig equity mutual funds portfolio after big fall in markets; SEBI registered tax and investment expert Jitendra Solanki said, "Like debt allocation, one should allocate same Y portion in large-cap stocks and move that portion in same way from large-cap to small-cap as it has been advised to move one's money from debt to equity. Such practice is advised because during market rebound, small-cap stocks move faster than mid-cap and large-cap stocks and hence small-cap mutual funds are expected to outperform mid-cap and large-cap fund's after trend reversal in near term."

For a fresh investor, experts advised such investors to invest entire debt allocation immediately and invest 40 per cent of one's money allocated for equity funds. Then stagger the remaining 60 per cent via 3 Month Weekly Systematic Transfer Plan (i.e STP).

Disclaimer: The views and recommendations made above are those of individual analysts or personal finance companies, and not of Mint.


Asit Manohar

Chief Content Producer at Live Mint Digital Team
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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