Nifty stuck in narrow range. Here's the mutual fund move you need to make now

With the Nifty 50 trading in a narrow range, mutual fund experts advise investors to stay the course and continue their SIPs as planned, emphasising that market volatility is a natural part of investing and should not prompt attempts to time the market.

“Investors should continue the SIPs as per the usual plan. Volatility is an inherent feature of markets. During a correction, SIPs work well as they average out the costs. So, if an investor puts their SIP on hold at the cost-averaging stage, they might miss the rebound if it happens soon after,” Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance, shared with ETMutualFunds.

Also Read | HDFC Defence Fund adds Bharat Forge and Bharat Dynamics in its portfolio in May

Another expert shares similar advice that investors avoid market timing risk and should continue with their ongoing SIPs. “SIPs help investors avoid market timing risk by investing at pre-determined intervals. Investors should continue with their SIPs and avoid trying to time the markets, as more often than not, it is counterproductive to portfolio outcomes,” Kaustubh Belapurkar, Director – Manager Research, Morningstar Investment Research, told ETMutualFunds.

On Friday, the benchmark index Nifty50 closed at 24,888, tracking sharp losses in Asian markets after Israel launched military strikes on Iran, escalating geopolitical tensions in the oil-rich Middle East. Nifty50 touched its 52-week high level on September 27, 2024, of 26,277 and is currently down by nearly 6% from its 52-week high level.

For the passing week, Ajit Mishra – SVP, Research, Religare Broking shared that markets remained under pressure and declined by over a per cent during the week, weighed down by rising geopolitical tensions and mixed global cues. “After starting the week on a subdued note, indices gradually drifted lower amid increased volatility and finally settled near the week’s low,” he added.
Amid the ongoing geopolitical volatility due to Israel-Iran tensions and others, the two experts recommend that investors who are waiting to start fresh investments now can go for SIP or STP, and a disciplined asset allocation approach helps to tide the market volatility.
“SIPs are the best way to invest, instead of waiting on the sidelines trying to time the market. Following a disciplined asset allocation approach combined with regular investing through SIPs helps tide over market volatility to achieve desired portfolio outcomes,” Kaustubh advises.
Also Read | ITC and BSE among stocks that mutual fund bought and sold in May

On the other hand, with a similar opinion, Minocha adds that a lump sum is preferable only when one has a long-term horizon and a high risk appetite.

“For fresh money, investors should do STP or staggered SIPs to spread out risk. Lump sum is preferable only when you have a long-term horizon and a high risk appetite. Many times, waiting for the perfect opportunity leads to missed opportunities,” Minocha recommends.

There are many different equity mutual fund options available to invest in, each serving a different purpose. While recommending which mutual fund categories are better suited for volatile markets, Minocha recommends that large-cap index funds and dynamic asset allocation funds do well during volatile market phases. “Gold or Gold ETFs are also a hedge whenever there are geopolitical threats like the Israel-Iran conflict. Though for long-term holdings, diversified equity funds tend to do better,” he added.

Many market experts believe that gold is considered a hedge against inflation, and with global economic conditions remaining uncertain, gold is expected to retain its appeal as a hedge against market instability.

Kaustubh from Morningstar Investment Research recommends that investors should follow a disciplined asset allocation approach, which is driven by the investors risk return objectives and investment time horizon, as this drives the intended portfolio allocation across asset classes, including gold. And he believes that gold works as a good risk diversifier in a portfolio, as gold prices tend to display low correlation with other asset class price movements.

Debt mutual funds are expected to offer portfolio stability amid market volatility, while international funds provide exposure to diverse global markets, commodities, and foreign indices. Ultimately, the performance of these schemes depends on the specific geographies in which your money is invested.

Also Read | Explained: What all Gen-Z should know about mutual funds

When asked whether investors should opt for debt mutual funds amid market volatility or consider international diversification, the expert from Morningstar Investment Research advised that debt funds should be chosen only if they align with an investor’s asset allocation strategy. As for international exposure, it can enhance diversification and be added to a portfolio at any time.

Sharing a slightly different opinion on this, Minocha says that short to medium-term debt funds or arbitrage funds are safer if investors need the money within a time horizon of less than three years.

However, for diversification, one can consider building gradual exposure to international funds, although India remains strong on long-term fundamentals. Unfortunately, the mutual fund route is still not available for international funds, he added.

One should always invest based on their risk appetite, investment horizon, and goals.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and Twitter handle.