How To Plan Your Mutual Funds Through The Slowdown And Falling GDP Scenario

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Even as India’s GDP rate has fallen to a six-year low of 4.5 percent, the Sensex continues to remain bullish, charting record heights with an all-time high of 41809 very recently. Quite unusual, no? Because the markets usually go high in a thriving economy.

Many investors find it even more unusual since the growth in Sensex and Nifty is not reflecting in their portfolio. How does one explain dipping GDP, rising markets and low portfolio returns? More importantly, how can one use this as an opportunity to make more through their investments in the mutual funds?

Now, the BSE Sensex has gone up by around 14 percent in 2019. But around the same time, returns in the BSE mid-cap and small-cap companies have dropped by about -4 percent and -8 percent respectively. So, while we keep hearing about markets going up, what we don’t look at is how most of the small and mid-cap stocks are not part of this rally at all. You should also know that not all stocks that are part of the Sensex growth. The rally is driven by a handful of stocks and thus, most stocks were not a part of the soaring markets.

As a thumb rule, you do not need to disrupt a well laid out financial plan based on a market disorder.

Following strategies could benefit you depending on your profile.

For a risk-averse investor/conservative investor:

1. Investing in a large cap fund or an index fund, which invests in a Nifty 50 and a Junior Nifty i.e. the second set of top 50 stocks in the Indian markets, will be a good option. You can continue to expect decent growth in the years to come in these top 100 companies and going with them reduces risk to a great extent in the long run.
2. Add a dynamic asset allocation fund to balance your portfolio, it will also help you manage the market volatility.

For a moderate risk taker:

1. Invest in a combination of Balanced and multi-cap funds
2. You can also add a focused fund to help you mitigate the higher risk of mid and small-cap funds. This combination can help you generate a decent return.

 For an aggressive investor:

1. Invest in a mid and small-cap space: The overall valuations are very attractive and this is one of the best times to invest in it because the real economic slowdown is quite evident in these sectors. Use the Systematic Transfer Plan (STP) and Systematic Investment Plan (SIP) mode of investments to invest in these sectors. You will be benefitted greatly as soon as the market witnesses a broad-based rally.
2. Diversify in international markets: You should also start looking at investing in international funds, specially those which have a US market exposure. It will provide you a good geographical diversification and the benefit of dollar appreciation. This can be a good savings and hedge option for your kids’ education or a planned foreign vacation.
3. Besides the mid-cap and international funds, an aggressive risk profile investor can allocate some percentage in other sectoral funds like the pharma, auto or the banking sectors, which are offering attractive valuations.

There is a slowdown, but not a recession. As shown above, you can still make money. Just remember, there is no one-size-fits-all solution in the markets. Choose yours, depending on your own goals.

The author is a Chartered Accountant by Profession and a founder and Chief Gardener of Money Plant Consultancy.