Financial experts say this is being seen as the right time for investors to re-allocate their portfolios amid volatility in the market and hike in the repo rate. As small cap funds are no longer very attractive, risky assets are not entirely there and crypto assets – once the darlings of the youth – are fast becoming a hot potato for both young and old.
Against the backdrop of all this, investors can explore a number of options, such as short-term or liquid and floater funds, depending on their financial goals and needs in an effort to rebalance their portfolio.
Floater funds are debt mutual funds that invest a minimum of 65 per cent in floating rate securities issued by the government or corporates.
“Investors may shift to short-term debt funds after these banks reach the peak of FD rate hikes,” Naveen Kukreja, CEO and Co-Founder, Paisabazaar said in an interview to MintGenie.
Here are some changes that investors can introduce to their portfolio:
Short Term Debt Funds: As consumer inflation hits 17-month high, bond yields continue to rise, it will not take long for RBI to raise key interest rates again. That’s why financial advisors say that investors should look at short term debt funds.
“The interest rate cycle is on an upward trajectory for now. How high the rates will be will depend on the inflation rate. It is not a good idea to lock for a long period right now. Hence, investors should look at short term deposits or mutual funds before locking in for a longer period.”
From Small Cap to Large Cap: Though small cap funds outperformed their larger rivals in the mid cap and large cap categories in the last financial year, this trend does not appear to be sustainable for long.
According to data from ICRA Analytics, small-cap mutual funds have given 37.19 per cent returns in the last one year, while mid-caps have given 24.46 per cent and large-cap funds have given 17.76 per cent. However, when it comes to stability, small caps are not as stable as their larger peers.
“Globally, due to abundant liquidity, there has been a lot of foam in the asset markets, which has led to a sharp rise in the prices of equities, cryptocurrencies, NFTs, etc. Financial conditions are beginning to tighten and the asset valuation corrects. If one is to stay invested, Sandeep Bagla, CEO, Trust Mutual Fund says, “In equities, large cap funds are better than mid and small cap funds, as large companies are able to weather the tough times better and earn consistent profits. are capable.”
Risky assets: When money is available at low rates, investors have little concern about the price they will pay for the company’s future earnings. Amid the abundance of liquidity, investors began to believe that no price or valuation is too high for ‘quality’ companies.
but not anymore! With rising cost of money, rational investors are expected to seek a higher margin of safety on valuation. As stocks with high PE ratios get de-rated, Contra and Value funds with low PE ratios can perform well.
Dipali Sen, founding partner, Srijan Financial Services, told MintGenie in a recent interview, “While a growth strategy may work best for bull run or momentum-driven markets, an opposite strategy is most meaningful in bear phases of the market. Might be possible.”
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