MF Asset Allocation: The Nifty 50 is down by about 15 per cent year-till-date (YTD) while the 3-year return is just about 6 per cent. For an equity market investor, who has been investing for quite some time now, the performance of the mutual fund portfolio may not paint a lively picture either.
In the middle of the COVID-19 pandemic, with corporate earnings looking to be lower than before, equity investors, including mutual fund investors, may be concerned about their current portfolio. Even those who have their SIPs in equity funds may be considering to stop their future SIPs or even exiting from them. But, should they do that? “No, SIP should not be stopped by a mutual fund investor. Rather, the SIP amount should be increased as investors who invest in volatile times will generate much better risk-adjusted returns in the future,” says Amit Jain, Co-founder & CEO, Ashika Wealth Advisors.
The stock markets by nature are supposed to be volatile and one, therefore, even for a long term investors it is important to follow certain investment strategies. “Investors should follow a strategic and staggered investment process rather than making a haphazard lumpsum,” says Jain.
For overall better portfolio returns, it’s essential that one maintains the right asset allocation and does not depend on the performance of any one asset class. “Investors should now focus on moving the money with a different strategy of ‘Invest Rightly, Switch Timely’, across asset class & product categories” informs Jain.
As and when your investments in different assets generate a decent return or is above your target returns, it’s better to book gains and deploy the gains in the assets which is under-performing. “We suggest, a periodic re-balancing should be done across asset class & different product categories,” says Jain.
Equity Vs gold
The recent performance of equity Vs gold as an asset class has clearly shown the importance of asset allocation. “In our view, right asset allocation becomes the key as we have seen in the past, bull market in one asset class may simultaneously exist with bear market in another asset class. Classic example is the inversely co-related performance of the stock market and gold ETF in the last one year. Hence, diversification across asset classes is the key for serious investors if they want to have better risk-adjusted returns,” informs Jain.
Gold has so far in 2020 generated a return of over 20 per cent and is expected to go higher. “We are bullish on gold from a long term perspective, as we feel, COVID-19 started as a health crisis, became a financial crisis and will end up as a geo-political crisis. In such uncertain times, gold always outperforms other asset classes. Hence, we are advising 20% allocation in gold ETF by keeping at least a 5 year Investment horizon in mind,” says Jain.