Mutual funds to watch during this market correction

When it comes to buying mutual funds it is all about timing the market. Usually mutual fund investors tend to go into overdrive seeing the market fall. We look at funds that can outperform a market correction.

Despite the deep correction, experts are of the opinion that investors should not be head first and stick with largely safe large-cap bets.

“We remain more on a large-cap-oriented strategy. Hence, large, large- and mid-cap and flexi-cap funds would be a better strategy at this point,” said Harshad Chetanwala, SEBI-registered investment advisor and co-founder of MyWealthGrowth.

Chetanwala tells investors to go slow in small-caps, especially through lump sums.

Experts suggest a mix of active and passive strategies, where 20-25% of the allocation goes to passive funds and the rest to active funds. “In the current market conditions where the stock may be slightly correct, active fund managers can offer better investment opportunities. When we talk about passive it is purely Nifty or Sensex index.

Equities have taken a major hit in the past months, due to the recent uncertainty caused by the Russia-Ukraine crisis and a possible interest rate hike by the US Federal Reserve.

Gold has been a major beneficiary as data available with ValueResearchOnline shows that bullion funds have given an average return of over 15% on a one-year basis as against the 9% return given by the large-cap category.

So, what should be the strategy of mutual fund investors when it comes to precious metals?

“We had suggested a lump sum amount in gold five-six weeks ago, when there was a technical snag. But we don’t see gold going from $2,000 to $2,500. Amit Kumar Gupta, New Delhi-based Portfolio Manager at Adroit Financial Services Pvt Ltd, said, “I think once all this (Russia-Ukraine crisis) is sorted out, you will see gold coming back to $1,700-1,800 levels.” A SEBI-registered portfolio management firm expert suggests that investors can allocate 5-10% to gold.

When it comes to Systematic Investment Plans (SIPs) or lumpsum, which is the better route at the moment?

“If you have surplus today, you go with 10-15% investment in your existing portfolio as a lump sum. We are yet to see how the Fed rate impacts,” Chetanwala said.

In terms of global diversification, Chetanwala suggests holding around 10% of the overall portfolio in international stocks.

“International markets have fallen much more than in India. Unfortunately, Indians are missing out on this opportunity as most of the international funds have some restrictions on international investments. Still, there is no one-time big money investment at this stage across India or internationally. Gradual investment may work better,” he said.