With equities falling, what should be your mutual fund investment strategy?

With equities falling, what should be your mutual fund investment strategy?

by 5paisa Research Team Last Updated: Nov 30, 2021, 03:22 PM IST

Most of the equity indices in India are down by more than 8% from their recent peak.

The fall in the equity market recently has made many investors anxious, especially those who have entered the equity market (directly or through mutual funds) in the last one and half years. This is the greatest fall they have witnessed in the last 18 months. Most of the equity indices in India are down by more than 8% from their recent peak attained on October 19. It is the largest drawdown witnessed in the frontline index such as Nifty 50 in the last one and a half years. For the broader market, we had seen a similar fall in August, but large-cap had remained intact.

The worst performing funds are those who have given the best returns recently. So funds based on themes such as PSU, Energy and Bank are the worst performers from October 19 till November 29.

Following table gives a glimpse of the worst-performing category of mutual funds since October 19.

Category 

Average Return(%) 

Energy 

-10.54 

PSU 

-9.68 

BANK 

-8.52 

DIV Y 

-6.99 

Value 

-6.96 

Large Cap 

-6.74 

Mid Cap 

-6.42 

ELSS 

-6.31 

THEMATIC 

-6.26 

Large & Mid Cap 

-6.25 

Multi Cap 

-6.21 

Small Cap 

-6.12 

Flexi Cap 

-5.65 

ESG 

-5.32 

INFRA 

-4.76 

IT 

-4.54 

Consumption 

-4.53 

MNC 

-3.68 

Pharma 

-2.05 

International 

-1.22 

Various factors have been suddenly realized by investors, which is putting a brake on the forward march of equity indices. The first is stretched valuation. Nifty 50 is trading at a forward PE of more than 22 times, which is almost 29% higher than its long term average. This coupled with muted earnings growth has spoiled the party. Besides all these, rising concern about inflation and continuous profit-booking by foreign portfolio investors has dented the market movement.

We believe the volatility is likely to remain here as a new variant of covid-19 has emerged, which will keep the market on tenterhooks. In such conditions, we advise readers to go and check their asset allocation. If your equity allocation has gone beyond your tolerance limit bring it down to the original that suits your risk profile. Nevertheless, if you are a new investor and were waiting for a correction to enter, my advice will be to go with a balanced advantage fund, which invests in both equity and debt-based on market dynamics. This is also not a time to discontinue your investment through SIP.

SENSEX
54,326.39
1,534.16 (2.91%)
Nifty 50
16,266.15
456.75 (2.89%)
Nifty Bank
34,276.40
960.75 (2.88%)
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SENSEX
54,326.39
1,534.16 (2.91%)
Nifty 50
16,266.15
456.75 (2.89%)
Nifty Bank
34,276.40
960.75 (2.88%)

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