Don't follow the herd: Make buy-sell decisions based on asset allocation

The Association of Mutual Funds in India’s monthly data on mutual fund (MF) flows held an element of surprise. Equity MFs witnessed outflows worth Rs 2,480 crore in July — the highest in seven years. Shorter-duration funds, on the other hand, received money. Investors also gravitated towards fund-of-funds of international schemes and gold exchange-traded funds (ETFs).

These numbers represent the aggregate decisions of all the investors in the market. But instead of following the herd, investors should make buy-sell decisions. After the steep fall in March, the bounce-back in equities has been sharp. Many new investors, rattled by high volatility, may conclude that their appetite for equities is not as high as they had deemed it to be. They should move to more stable asset classes.

Those who have goals coming up in the near term should book profits in equity MFs. “Be prepared not to touch your portfolio for the next three-four years," says Arvind Rao, chartered accountant and founder, Arvind Rao & Associates.

Most Indian investors have 100 per cent of their portfolio invested in the domestic market. But over the past few years, the US market has done very well. Indian investors also want exposure to technology stocks (like the much sought-after FAANG stocks), and hence, are venturing abroad. Around 20 per cent of an investor’s equity portfolio should be in international funds. “Even if valuations are on the richer side, investors must get into international funds for the sake of diversification,” says Kunal Bajaj, head of wealth management, MobiKwik.

 

 

Those looking to build their asset allocation now should stagger their entry. Those who had taken exposure earlier may have become overweight and do some profit booking.
 

The shift towards shorter-duration funds represents a movement towards safety. Investors should fill their fixed-income portfolios with government-backed schemes, which offer decent returns and carry zero credit risk. “Those investing in debt funds should shun credit and duration risk altogether. For such investors, shorter-duration debt funds can be an evergreen strategy,” says Ankur Maheshwari, chief executive officer, Equirus Wealth Management.

Gold ETFs have received inflows because the yellow metal has been on a hot streak. But it is not certain that this bull run will continue. “I have doubts if the yellow metal can rise another 20 per cent from these levels,” says Ankur Kapur, managing partner, Plutus Capital. Those who don’t have an allocation should stagger their entry or buy on corrections. If you have become overweight on gold, do some profit booking.