3 Tips for Mutual Fund Investors to Invest in Range Bound Markets

AMFI’s Mutual Funds Sahi Hai campaign may have driven new investors to Mutual Funds in droves in the past couple of years, but a lot of them are now frustrated with the performances of their portfolios in 2018. After all, we seem to be stuck in an extended ‘time correction’ of sorts – a situation where stock prices neither move up or down, but just seem to flap about in a range. During such phases, it’s quite likely that your portfolio will earn no returns at all, and you’ll be tempted to go rushing back into the haven of fixed deposits. This may not be a wise decision, so don’t jump the gun! Follow these three rules instead.

Follow Asset Allocation Principles

In times like these, following sound principles of asset allocation will keep the wheels of your portfolio spinning, despite the ups and downs of the equity markets. For instance, you should ideally have a certain percentage of your portfolio (ranging from 30% to 50%) parked away in debt funds right now, regardless of your time horizon or risk tolerance levels. A well selected portfolio of Debt Funds by a professional Financial Advisor can earn you FD-beating returns with superior tax efficiency and liquidity and ensure that the flat returns from equities are somewhat compensated for.

Keep your SIP’s Running

It might sound counterintuitive, but range bound markets actually represent a good accumulation opportunity for long term SIP’s. If your initial SIP accumulation were to take place in a bullish market that was is a linear uptrend, your long-term returns may have been hampered – especially if markets were to fall when you were closer to your goal. Current markets will be showing you disappointing CAGR numbers for your SIP’s now, but when the tide turns (which it invariably will), all your units accumulated at these low costs will go up in value at once, resulting in handsome portfolio growth. Keep your SIP’s running at all costs.

Manage your Mind!

Your biggest enemy in range bound markets is your own mind. You may be overwhelmed by your impatience and be tempted to thrown in the towel just before the next bullish cycle begins. Instead stay focused on your long-term goals and attach lesser significance to short term returns now. Understand that equity returns are non-linear, and it isn’t uncommon for a bullish year (2017) to be followed by one or even two bearish years. Stay put and stay the course resolutely if you are to reap the true rewards of equity mutual fund investing. Remember, Mutual Funds Sahi Hai – but you’ve got to be patient during times like these!