Investing At All-time Highs
The domestic equity market has experienced a phenomenal year in 2023, with both the Nifty and Sensex indices reaching all-time highs. Due to the high level of confidence surrounding India's growth story, domestic investors have been actively participating in the rise thus far. Since equity indices are hovering near the highs, in this scenario, a lot of new investors are eager to join the market and take part in the frenzy. However, given the range of investment options available, determining the optimum path to achieving this aim becomes challenging.
The Current Scenario
The Indian economy has been growing during a period when the advanced market economies were dealing with a number of issues. Indian corporate earnings have been increasing steadily, balance sheets have been deleverage and banks are at their healthiest point over the past decade, all of which makes India's growth story a robust one.
When it comes to investing in the current market conditions, mutual funds emerge as an ideal choice. Mutual funds combine the capital of many investors and use their predetermined strategy to invest the corpus in a range of asset classes. In this manner, lay investors get access to professional investment management for a reasonable price. However, within the mutual fund universe, there are a variety of offerings available. So, the question is which segment to choose from?
Investing Options
Given that large-cap stocks are less frothy than mid- and small-cap names, investing in the top 100 listed companies in the nation through a large-cap fund can be an appealing option. Investors should keep in mind that mid- and small-cap companies are extremely risky and volatile when making investments in the current times. Apart from the high valuations, there are a number of other risk factors that could materialise in the near future and cause volatility, including rising commodity prices, geopolitical tensions, and global central bank activities. Hence, it is advisable to use a hybrid approach, such as those provided by a multi-asset mutual fund, in this context.
Within the hybrid pack, multi-asset funds are mutual funds that distribute capital among a variety of asset types, including debt, equity, commodities, REITs, InvITs etc. Optimising the risk-return profile through diversification of investments is the aim here. This fund is a great choice for the current environment since it is managed by experienced portfolio managers who base allocation decisions taking into consideration factors such as market conditions, economic outlook etc.
One of the main advantages of investing in multi-asset mutual funds is their inherent ability to provide diversification, which lowers the risk involved in making a concentrated investment in a single asset class. Portfolios with greater diversification typically fare better when markets turn volatile. Second, such funds have the adaptability required to modify asset allocations; as a result, they can take advantage of opportunities and control risks as market conditions shift.
Furthermore, by adjusting allocations between asset classes, multi-asset funds actively manage risk. For instance, they often allocate more to defensive assets like bonds and cash and decrease their exposure to equities during economic downturns. In effect, multi-asset funds provide an easy-to-use investing option that may accommodate a range of risk tolerances.
Multi-asset funds make sense in the uncertain financial landscape of today because they can best manage market volatility. By allowing multi-asset funds to smoothly minimise your potential downside, you can take advantage of all equity categories without having to commit to just one. This allows them to modify allocations to lessen the impact of sudden market fluctuations. Historical data indicates that multi-asset funds have produced better risk-adjusted returns over an extended period of time.
In conclusion, multi-asset funds or large cap funds can be taken into consideration for investing in current times. In case if you are still considering taking exposure to mid and small caps, then the optimal approach will be via flexi cap and multi cap funds.
