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Protect your mutual fund portfolio from Coronavirus, and yourself

When you invested in a mutual fund scheme, you would have earmarked each of your mutual fund schemes to specific financial goals. For example, a retirement that is twenty years away or a higher education fund for a child that is eight years away.

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Last Updated: Mar 30, 2020, 10.26 AM IST
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vishal dhawan
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By Vishal Dhawan

Financial markets across the globe have been hit by volatility, about five times more than normal, on the back of the COVID-19-induced health and economic concerns. Both the quantum and speed of the correction across equity markets, debt markets and the Indian Rupee has left investors wondering what they should do next. Mutual fund investors have also seen most of the gains that they had made over the last few years evaporate from their portfolio.

As our brain oscillates between fear and greed, here is a series of things mutual fund investors can do and avoid.

You should do these things...

Stay focused on your financial goals and milestones
When you invested in a mutual fund scheme, you would have earmarked each of your mutual fund schemes to specific financial goals. For example, a retirement that is twenty years away or a higher education fund for a child that is eight years away. You need to remind yourself about why you invested, and therefore if you used equity mutual funds for long term goals, continue with investing towards those goals. Only if the goals are likely to fructify much sooner than originally planned, should you change your strategy.

Continue your SIPs and STPs
The biggest benefit of investing through a SIP and/or STP (Systematic Transfer Plan) is to get the benefit of rupee cost averaging. That is, getting more units when markets fall. As this opportunity has presented itself now with markets falling sharply, ensure this by continuing or enhancing your SIPs to truly benefit from rupee cost averaging.

Rebalance your portfolio
The key to a successful asset allocation-driven strategy using mutual funds is to rebalance on a periodic basis. That is, buy the asset that has become underweight in the portfolio like equity at this point due to the sharp correction, by selling the overweight asset. Rebalance to the extent that you have become underweight on equity and do not go overboard. Let fear or greed not come in the way of this rebalancing action.

… and avoid these things

Do not chase the next multibagger sector/stock
With markets fallen sharply, it is very tempting to try to identify which stock or sector has fallen the most and may bounce back the most, to gain multi-bagger returns. We believe that investors need to avoid trying to do this themselves and leave it to their fund managers to decide on this sectoral/stock selection decision. In an equity market that has fallen sharply and where the extent of the impact of individual businesses are hard to estimate, do not try to seek excessive returns over the market (alpha) as the market returns itself (beta) should be attractive for most investors over a period of time. Avoid sectoral funds.

Don’t give up on your global investment strategy
With the pandemic impacting most parts of the world, the immediate benefits of having a globally diversified portfolio may not be evident. However, you need to remember that the ability of different countries to support their economies through this slowdown may be very different, and thus having a globally diversified portfolio should help. For example, China is already starting to go back to work, whilst the US and India are still in lock down. Look to maintain a combination of Indian and international mutual funds in your portfolio.

Don’t try to predict the bottom
The bottom of this market, like in all other previous episodes, will be known only in hindsight. Trying to predict it at this point is a futile exercise. Avoid trying to estimate when the market will recover as well, as there are multiple variables that will dictate that. Continue to invest as the equity markets are attractive in a low interest rate, low oil price world and valuations on a market cap to GDP and price to book basis, vis-a-vis historical valuations.

Protect your mutual fund portfolio from rapid changes in strategy, and seek professional advice if necessary. Stay safe with your mutual fund portfolio.

(Vishal Dhawan is a certified financial planner and founder of Plan Ahead Wealth Advisors, a SEBI-registered investment advisory firm)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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