Navigate Equity Landscape At All-Time High

The month of September has been an extraordinary one for the domestic equity market, with both the Nifty and Sensex benchmarks touching record peaks. Earlier this month, the Sensex regained its historic 67,000 milestone, while the Nifty scaled the 20,000 mark for the first time. The rally, which began a few months ago, is now being fuelled by robust participation from domestic investors, given the strong optimism owing to India’s successful G20 presidency as well as the positive data released this month. In this scenario, wherein equity investing is at an all-time high, many new investors are keen on entering the market and participating in the euphoria. However, the best route to realising this goal becomes confusing, considering the variety of options available.

Understanding the current scenario

In August, inflows into equity mutual funds surged to INR 20,245 crore, with investors parking a record INR 15,813 crore by way of systematic investment plans. Mutual funds pool capital from a large number of individuals and invest the corpus in a variety of asset classes, based on their pre-decided strategy. It is an excellent and popular means to access expert fund management at an affordable fee. If you are considering investing in an equity mutual fund, you have taken the right decision. However, which scheme should you opt for?

A large-cap fund, which invests in the top 100 listed companies of the country presents to be an attractive pocket as they are less frothy than mid and small caps names. While the equity market continues to hover near all-time highs, many stocks are also trading at high levels, both from a price as well as a valuation perspective. While investing in such a scenario, investors should be mindful that mid- and small-cap stocks are highly volatile and fraught with risk. Apart from these there are risk several risk factors which can come into play in the near term such as geopolitical tensions, surge in commodity prices, global central bank activity, all of which can create volatility in the near term. In this backdrop, it is best to adopt hybrid strategy like the ones offered by a multi-asset mutual fund.

Assessing multi-asset mutual funds

Multi-asset fund, as the name suggests, are mutual funds that allocate capital across a diversified mix of asset classes such as equity, debt, commodities, REITs, InvITs etc. The goal here is to optimise the risk-return profile by spreading investments across a range of assets. This fund is managed by professional portfolio managers who make allocation decisions based on market conditions, economic outlook, and investment objectives, making it an excellent option for the current landscape.

Major benefits of investing in multi-asset mutual fund include the fact that these schemes inherently offer diversification, thus reducing the risk associated with a concentrated investment in a single asset class. Diversified portfolios tend to be more resilient in turbulent market conditions. Secondly, these schemes depict the flexibility necessary to adjust asset allocations, and can, therefore, seize opportunities and manage risks as market conditions change. Further, multi-asset funds actively manage risk by shifting allocations between asset classes. For example, during economic downturns, they tend to reduce equity exposure and increase allocations to defensive assets like bonds and cash. In this manner, multi-asset funds offer a simplified investment solution suitable for various risk appetites.

Should you choose multi-asset funds?

In the current financial landscape marked by uncertainties, multi-asset fund make sense due to their ability to navigate market volatility optimally. Since multi-asset funds can adjust allocations to mitigate the impact of sharp market swings, you can enjoy the benefits of all equity categories, without committing to just one, thus limiting your potential downside seamlessly. However, before investing, you should be aware that, despite diversification, multi-asset funds are still exposed to overall market movements. Over long-term, historical data shows that multi-asset fund has managed to deliver robust risk-adjusted returns.

To conclude, multi-asset fund is a meaningful addition to one’s portfolio and can be considered for lump sum investment. Given the nature of the fund, an investor may consider this type of fund as a part of one’s core portfolio.