Confused about where to invest in a volatile market? Here’s a list of hand-picked funds

Many retail investors have dabbled directly in stocks to pocket quick bucks as their long-term portfolios languished because of the market volatility triggered by the coronavirus pandemic.

While a volatile stock market may present short-term opportunities, mutual funds are best suited for your financial goals. But selecting a fund can be taxing, given the multiple categories and schemes.

To help you select funds as per your asset allocation, we curated a list of 50 schemes that balanced returns and risk, and maintained good portfolio hygiene factors. Not only are Mint50 funds picked after a rigorous quantitative and qualitative process, but an annual audit of the schemes is also done to review their performance and make changes wherever needed.

Each year presents new challenges, and this year, too, fund performances reflected the double whammy of a slowing economy that was compounded by the covid-19 pandemic and a skewed market that rewarded just a few stocks. It reflected in equity funds underperforming the benchmarks and long-term returns from equity investments barely beating fixed-income investments on a point-to-point basis.

On the fixed-income front, the economic slowdown and the worsening credit climate translated into a greater fear of defaults and the flight to safety of ‘AAA’ and government bonds by debt funds. On the other hand, the easing of policy rates to pump-prime the economy along with tools like ‘Operation Twist’ adopted by the Reserve Bank of India to soften yields allowed debt funds to reap valuation gains as prices of fixed income securities went up in response to falling interest rates. Debt funds also had to deal with tightening liquidity in the fixed-income markets, especially for lower-rated bonds. We increased the weightage for asset quality and liquidity in the assessment process so that the riskier schemes could be filtered out.

For investors, it was a time to reset expectations. The ‘long-term’ required to make equity investments worthwhile moved to over seven years for many categories and investment styles. The fixed-income investments that were supposed to be the safe portion of their portfolio took sharp cuts in net asset values as bonds defaulted. The need to go beyond the return numbers and understand the risks and portfolio features was a valuable lesson learned.

We have done the groundwork for investors and screened the schemes. But for a few schemes, the list remains unchanged, validating the selection process. Changes were made where we felt that a scheme did not add value to the basket or if the risks were seen as excessive. To give you a snapshot, here is a list of multicap funds from the Mint50 basket (see graphic).

Multicap funds can invest across equity market segments and, therefore, the different investment flavours offer something for most investors. Investors should review their portfolios to assess how well they are poised to meet their goals. Holding a diversified portfolio of investments across categories aligned to their needs should be the guiding principle for all investment choices.