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Top Mutual Fund Picks and Strategies amid Coronavirus Crisis

Highlights

  • What mutual fund investment strategy to adopt as Sensex & Nifty have fallen due to Coronavirus led slowdown?
  • Check the proportion of investment across different mutual funds

The Coronavirus crisis has led to a steep fall in the markets-Sensex & Nifty are down by 30%+, thereby leading to a fall in the portfolio values. Mutual funds have also seen the impact of this fall with erosion in NAVs and negative returns. As the uncertainty looms with no clear solution in sight, it is imperative to have a look at one’s mutual fund portfolio, strategize and make necessary changes. In these times there are certain mutual fund picks or funds which can be a good investment option for the next 3-5 years. We have divided the mutual fund picks and strategies into two categories-beginners/new investors and existing investors

Mutual Fund Picks and Strategies for Beginners/New Investors

If you are planning to invest in mutual funds for the first time, there is no better time than this to start. Markets have fallen and investments made either through SIP or lumpsum over the next 6 months to 1 year should yield optimum returns over the next 3-5 years. We would advise different portfolio strategies basis different age groups:

Age GroupEquity (in %)Balanced(in %)Debt(In %)
20-35801010
36-50602020
51-70303040

These recommendations are based upon assuming a moderate to aggressive risk profile. If one has a conservative risk profile, he should not be in equities, he should rather invest 80-100% in debt and 0-20% in balanced schemes.

Considering the nature of market fall, large-cap mutual funds have fallen lesser than the mid & small- cap funds since large cap funds invest in the largest and most bluechip organizations in India. When the market recovers, these large-cap funds will be the ones to recover faster as well. Therefore, in the equity category, we would recommend one to invest in large-cap funds. In balanced and debt categories, we recommend one to invest in funds having a good track record (fund recommendations will follow below)

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Mutual Fund Picks and Strategies for Existing Investors

Many existing mutual fund investors have seen their portfolio values getting eroded in the last month or so. Most of the investors who started investing in the last 3-4 years are witnessing negative returns. It is the right time to have a re-look at your existing portfolios and rebalance according to the situation. Many have invested in small and mid-cap funds especially in 2017 when these funds gave great returns but are seeing a reversion now. The strategy for existing investors will depend on the time horizon left towards achieving their goals through these investments and can be bucketed as follows:

  • Investors who have 5 years + investment horizon from here on should stay put, hold on to your investments and not do much. You should aggressively add on to your existing SIPs and invest lumpsum in a staggered manner over the next 6 months into large cap funds.
  • Investors who have a 3 to 5 year investment horizon from here on should also stay put, hold on to their investments but switch investments in mid & small-cap funds to large-cap funds.
  • Investors who have a <3 years’ time horizon should switch 50% of their portfolio into debt funds and the rest should be into large-cap funds only.

Recommended Mutual Fund Picks/ Schemes

1)EQUITY FUNDS- As recommended above one should invest in large-cap funds at this point of time, so the recommended funds are:

  • Axis Bluechip Fund
  • ICICI Prudential Bluechip Fund
  • SBI Bluechip Fund

2)BALANCED FUNDS- These funds invest in both equity and debt thereby lending stability to portfolios and are ideal for people with moderate risk appetite. The recommended funds are:

  • ICICI Prudential Balanced Advantage Fund
  • DSP Dynamic Asset Allocation Fund
  • Edelweiss Balanced Advantage Fund
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3)DEBT FUNDS- There are various kinds of debt funds like short-term duration, long term duration, credit funds, liquid funds, dynamic bond funds, gilt funds, etc. Owing to the uncertainty around the economic outlook and likely defaults especially in the MSME sector, we would recommend one to only stick with liquid funds that have the lowest risk and close to being risk-free. One can expect a return of 6-7% which is more than what you can earn by keeping money in savings a/c. The recommended funds are:

  • HDFC Liquid Fund
  • Franklin India Liquid Fund
  • Aditya Birla Sun Life Liquid Fund

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