Mutual fund investments are subject to stock market risk. Hence, a mutual fund investor is required to remain vigilant about the stock market trends and tweak once portfolio on the basis of those market bias. According to tax and investment experts, despite hawkish central banks fueling stock the respective bourses of global markets, equities are expected to give modest return in short term. In such a scenario, rebalancing one’s mutual funds portfolio and switching from short term equity funds to ultra short term and debt funds may lead to higher returns. They went on to add that rebalancing of the mutual fund portfolio in right direction may yield 0.50 per cent to 1 per cent more.
How to rebalance your mutual funds stock portfolio
On mutual fund investments for short term amid stock market rally,. Vinit Khandare, CEO & Founder at MyFundBazaar said, “Equity mutual funds are anticipated to offer modest returns in the near term, despite extremely hawkish central banks on a global scale, amidst interest rate hikes. Rebalancing one’s mutual fund portfolio is imperative because switching from short-term equities funds to ultra-short-term and debt mutual funds may result in a 0.50–1% increase in returns.”
On advice to new investors during bull trend in stock market, Vinit Khandare of MyFundBazaar said, “Investing in stocks for a short period of time is not recommended. New investors are encouraged to look at debt mutual funds or liquid and bond funds instead of equity mutual funds since they are projected to provide better returns than equity funds because equities mutual funds are for medium to long term time horizons.”
Batting in favour of mutual funds portfolio rebalancing amid soaring stock market, Mohit Gang, CEO at Moneyfront recommended five major steps to a mutual fund investor. Here we list out those five steps to enhance probability of higher returns from mutual funds investment:
1] Revisit asset allocation: A mutual fund investors should revisit its asset allocation and strongly adhere to it. If in the recent run-up, equity portfolio has soared beyond the comfortable zone – this might be the right time to rebalance and trim allocations.
2] Investment strategy when stock market is rising: If someone is looking to deploy more funds in these markets, one should consider staggering it out over next 6-12 months via SIP or STP route. This will help ride out any volatility in foreseeable future.
3] Mutual fund categories to look at: For additional allocations at these levels, one should consider more conservative categories like Balanced advantage or dynamic asset allocation funds. These tend to adjust debt-equity component as per market fundamentals.
4] Remain vigilant about profit booking trigger: For someone considering pure equity allocation – one can restrict to Large cap or Flexi cap funds which are less volatile and would show more resilience if markets were to correct.
5] Avoid short term calls: Amid soaring stock market, a mutual funds investor should stay away from taking very short term or aggressive thematic equity calls in such a scenario. Any correction can put one back heavily. If at all, any fresh allocations have to be done with a view of minimum 5 year.
Asked about the suitable mutual fund plans that one can opt in above mentioned categories, Pankaj Mathpal listed out the following schemes for a mutual fund investor:
– Liquid fund (For less than three month time): Quant Liquid Fund, Nippon India Overnight Fund;
– Ultra Short Duration Fund (3 months to 1 year): ICICI Prudential Ultra Short Term Fund, ICICI Prudential Savings Fund;
– Short Duration Fund ( 1 year to 3 years): Axis Short Duration Fund; and
– Dynamic Bond Fund ( 1 year+): ABSL Dynamic Bond Fund.
Disclaimer: The views and recommendations given in this article are those of individual analysts or experts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 17 Jun 2023, 09:23 AM IST