Personal Finance: Diversify portfolio to tide over market volatility

Published on Jun 21, 2021 12:18 AM IST
Volatility in the market in these unprecedented times have changed people’s outlook towards debt and hybrid funds considering their relative stability over equities.
For representational purpose only. (FILE)
For representational purpose only. (FILE)
ByAbeer Ray

The coronavirus pandemic coupled with the upheaval in the stock market has forced many to re-evaluate their mutual fund investments. Continued investments in mutual funds is the key to earning high returns though plunging net asset values (NAVs) and volatility in the market in these unprecedented times have changed people’s outlook towards debt and hybrid funds considering their relative stability over equities.

That investments must be aligned to one’s goals is the mantra that guides every successful investor. Allocate, check, adjust, churn and re-adjust are simple steps to do to ensure that every investment you make is in tune with your short-term and long-term goals. Portfolio diversification is not a one-time task but involves a series of steps that could be repetitive. Here’s where you start.

If you are a long-term investor, consider investing in mutual funds for returns that beat inflation and help you earn more. Adhil Shetty, CEO,, an online marketplace for financial products, said, “Mutual funds are a good investment if you have at least three years to remain invested. If you are investing in children’s education, a large-cap fund or a blue-chip fund would be a good idea as these are less risky and provide returns to the tune of 12-18%. The chances of capital erosion in these funds are also less. The risk-averse can also consider debt-oriented hybrid funds that earn usually between 8-12% depending on the fund.” Many people also invest in secure government instruments that earn returns more than the inflation rate.

Choose your investments: Making the right pick of assets is an arduous decision and warrants a correct understanding of financial goals and risk tolerance. Mutual funds performing well under specific market conditions may not deliver similar results when the economy is in doldrums. The epidemic has shifted the focus from equity investments to mixed investments including debt instruments and fixed income schemes. Equity investments fall into different categories including investments in stocks/shares, equity mutual funds, arbitrage schemes and real estate funds. Debt instruments include bonds issued by companies, municipalities and various government sectors The fixed income schemes are mostly bank deposits including savings accounts and money invested in deposits promising fixed returns.

Jayesh Faria, associate director, Motilal Oswal Private Wealth Management, an investment and fund management company, said, “Do detailed personal risk profiling activity and arrive at ideal asset allocation keeping circumstances and requirements in mind. Roughly 80% of the strategic portfolio must be allocated to stay invested all the time. The balance 20% can be looked at tactically to take the opportunity of market volatility.” The open-ended nature of mutual funds helps to minimize investors’ risk quotient as concerned fund managers allocate the pooled amount into multiple stocks depending on the fund subscription by the investors.

Mere diversification of funds between the market and those earning fixed returns is not enough. You must also know how to diversify your allocations within your equity fund instruments depending on funds availability and understanding of risk versus returns. Also, holding several mutual funds incessantly without looking at their composition is tomfoolery. Instead, the focus must be on the diversification of mutual funds according to their market cap. You need to diversify across different fund categories such as flexicap, midcap, small-cap, and large & midcap. Even in debt instruments, pay attention to a proper mix of long-duration, medium duration, and short-term debt funds for better results.

Lump sum or SIPs? The decision to invest a definite amount in mutual funds or pay for mutual fund investments through small instalments has sent many people into a quandary.

Prashant Sawant, co-founder, Catalyst Wealth, a wealth management company, said, “SIP is a good option for the current volatile market. Since it is a disciplined investment plan it helps reduce the propensity to market fluctuations, cost averaging and render significant wealth creation in the long run.” Many investors are unable to decide if they must invest regularly in small chunks or wait for the right time to put their money in the market in a lump sum. Speaking on factors that guide investment making decisions in lump sum or SIPs, Dr Joseph Thomas, Head of Research, Emkay Wealth Management, a financial services firm, says, “In a country like India where retail participation in mutual funds is growing over the decades, SIP has served the purpose of giving access to funds for such investors even with very small monthly investments that are very much within the reach of the common man. Also, this mode is important is because one need not be bothered about the day-to-day happenings in the market. It is a matter of common experience that in a highly bullish market and one-way movement, a lump sum will provide you with better returns.”

Diversification helps to bear the brunt of sudden bull market corrections or gain from the bear market rallies. The equity stock market does not promise linear returns, and hence, it helps to enter the market in a phased manner through small and regular investments over a long period.

Monitor diversifications: Most people forget to check the performance of their investment portfolio. Once you have decided your investment choices and diversified accordingly, it is important to monitor their performance and plan the right step too. This is because some mutual funds may not perform as per your expectations. Their ineffectiveness must translate to relegating them to the lowest share of the investment portfolio while more money can be allocated to the more stable and outperforming ones. Check for the funds’ annual returns, growth in dividend income and asset allocation to assess your funds’ performance.

Personal Finance is a weekly feature that aims to provide our readers pertinent and helpful financial information

Close Story

Less time to read?

Try Quickreads

  • The injured woman being taken to hospital by RPF staff. (Image source: RPF S.W.Railway/Twitter)

    Bengaluru: Woman injured by goods train at Yelahanka Railway Station

    An unidentified woman suffered a 'major' injury after being hit by a goods train at Bengaluru's Yelahanka Railway Station Sunday. Staff from the Railway Protection Force acted promptly by giving her first aid treatment and then shifting her to a hospital for further treatment. It is not clear how the injury occurred.

  • The tenure of the 587 Village Committees (VCs) ended on March 7, 2021. (File image)

    Prior to 2023 state polls, Tripura parties prepare for village panel elections

    Ahead of the assembly polls scheduled to be held in 2023, the political parties of Tripura are gearing up for the upcoming village committee polls of the autonomous district council. The High Court of Tripura, in a recent verdict, requested the state government to announce the schedule of village committee polls of Tripura Tribal Areas Autonomous District Council and complete the poll process with declaration of results by first week of November.

  • The murder took place in G block locality of Shastri Nagar under Nauchandi police station. (File image)

    Wife, granddaughter of retired cop killed in Meerut; robbery suspected: Police

    In a tragic incident, the wife of a retired head constable and their granddaughter were killed by unknown assailants in their Meerut house on Sunday, police said. The murder took place in G block locality of Shastri Nagar under Nauchandi police station. Circle officer of Civil lines area Devendra Singh said police teams were on the spot and investigating the incident. The former policeman's wife and their 12-year-old granddaughter were also in the house.

  • Identified as Mukesh Nonia, the alleged baba is currently on the run. (File image)

    Bihar: ‘Supernatural baba’ dupes people, claims to cure cancer; remains at large

    A supernatural baba claiming to be a reincarnation of goddess Kali and able to cure all diseases, allegedly cheated thousands of people in Uttar Pradesh, police said on Monday. Identified as Mukesh Nonia, Mukesh's is currently on the run. Station house officer of Sujabad police station in Varanasi district, Sub inspector Sufiyan Khan, led the team that raided Mukesh's house. A manhunt to nab the accused has been launched, police said.

  • Musician and two-time Grammy award winner Ricky Kej encouraged people to hoist the tricolour in their homes in the run up to India's 75th Independence Day. (Image credit: Screengrab of Twitter video/Amrit Mahotsav)

    Watch: Bengaluru musician Ricky Kej's appeal to people on ‘Har Ghar Tiranga’

    Music composer and Grammy award winner Ricky Kej, from Bengaluru, is the latest to join the host of celebrities endorsing the government's 'Har Ghar Tiranga' campaign to mark India's 75th year of Independence. The campaign encourages people to hoist the tricolour in their homes to celebrate the platinum anniversary. The official Twitter handle of 'Azadi Ka Amrit Mahotsav' tweeted a video of Kej appealing to people to celebrate this Independence Day with 'Har Ghar Tiranga'.

Story Saved
Saved Articles
My Reads
Sign out
New Delhi 0C
Monday, August 08, 2022
Start 15 Days Free Trial Subscribe Now