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Mutual Fund : How to allocate your funds in this fluctuating stock market

Mutu­al Fund: The volatil­i­ty in the equi­ty mar­kets is caus­ing con­cern among investors in the finan­cial dis­trict. The BSE bench­mark Sen­sex has wit­nessed a steep decline of more than 3,000 points over the course of six con­sec­u­tive ses­sions, leav­ing investors, par­tic­u­lar­ly those who began their invest­ments after the mar­ket rebound­ed from the pan­dem­ic-induced down­turn in 2020, feel­ing anx­ious.

The Rea­sons Behind the Cur­rent Sit­u­a­tion

Between March 2023 and Sep­tem­ber 2023, the equi­ty mar­ket expe­ri­enced a rapid upswing, pri­mar­i­ly dri­ven by the surge in small and mid­cap stocks. This occurred in the midst of esca­lat­ing glob­al risks, which includ­ed height­ened inter­est rates and chal­leng­ing debt dynam­ics in var­i­ous regions, con­cerns about ele­vat­ed oil prices poten­tial­ly affect­ing infla­tion due to sup­ply issues, and recent geopo­lit­i­cal ten­sions.

The Indi­an econ­o­my and earn­ings growth are antic­i­pat­ed to exhib­it resilience. This resilience can be attrib­uted to increased invest­ments in the hous­ing sec­tor, strong cor­po­rate and bank bal­ance sheets, fresh oppor­tu­ni­ties for ser­vice and man­u­fac­tur­ing exports, poten­tial enhance­ments in the rur­al econ­o­my, and the pos­i­tive impact of a more for­mal­ized econ­o­my.

As Nilesh Shah, Group Pres­i­dent and Man­ag­ing Direc­tor at Kotak Mahin­dra AMC, puts it, “Mon­ey and sen­ti­ments are fick­le and they can turn around any time, but fun­da­men­tals take time to build. Now, look at cor­po­rate India’s earn­ing sto­ry. This quar­ter, cor­po­rate India will grow by 15–18%. Today, stock mar­kets are get­ting impact­ed in some quar­ters like micro-caps, mini-caps, and SME stocks that are see­ing cor­rec­tions. But the broad mar­ket is still trad­ing at his­tor­i­cal val­u­a­tion.”

Per­haps this chal­leng­ing envi­ron­ment might con­tin­ue for anoth­er two-three months. I don’t think the price cor­rec­tion will last very long. Hence, stag­ger your invest­ments over this peri­od.

Should You Pause Your Mutual Fund SIPs?

Sys­tem­at­ic Invest­ment Plans (SIPs), which allow indi­vid­u­als to invest fixed amounts in mutu­al fund schemes at reg­u­lar inter­vals, have been a sig­nif­i­cant fac­tor con­tribut­ing to the resilience of the Indi­an mar­kets over the past three years. Notably, SIP invest­ments sur­passed the Rs 16,000-crore mark for the first time in Sep­tem­ber 2023, accord­ing to data from the Asso­ci­a­tion of Mutu­al Funds in India (AMFI).

Where Should You Allocate Your Investments Now?

In the last two years, there has been a sub­stan­tial inflow of invest­ments into small-cap and mid-cap funds through mutu­al funds. In con­trast, large-cap fund inflows have remained lim­it­ed.

It is advised to exer­cise cau­tion with small-cap invest­ments, par­tic­u­lar­ly in com­pa­nies with a mar­ket cap­i­tal­iza­tion of less than Rs 10,000 crore. These com­pa­nies tend to have a sig­nif­i­cant own­er­ship base already. It is advis­able to steer clear of small­er-sized com­pa­nies alto­geth­er.

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