Stock market is volatile. How can mutual fund investors be defensive?

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We all know the market is in a tricky phase. It’s volatile and when we think the weak sentiment is going to persist, the market springs a surprise and gains 1,000 points. Sure, there are a lot of negative factors to account for – both global and domestic factors. An imminent rate hike, inflation, covid, economy … you can pick one that unnerves you. Is that the reason why many investors want to play ‘defensive’? You will hear this phrase: you should play defensive on this market. It seems, be cautious is replaced by defensive strokes.

Mutual fund advisors believe that investors are getting influenced by stock market lingo. For example, everyone is taking refuge in good quality bluechip stocks these days. Oh, also add, at attractive valuations. That is the defensive strategy for most stock market investors. They will also add some beaten sectors they think will bounce back. Can mutual fund investors replicate this strategy?

Mutual fund advisors say the strategy can’t be replicated. ‘Investing in individual stock offers a lot of choices but a mutual fund investor buys a portfolio. Also, the fund managers would employ such strategies to safeguard the portfolio,’ says an advisor who believes that investors should not get into micro management. The whole idea of investing in mutual fund is to leave the investment decisions to the fund managers, say advisors. In short, you don’t need to do anything extra.

Let us look at what investors traditionally used to do in a turbulent phase in the market. Most advisors would ask investors to stick to large cap funds and flexi cap funds ( they were diversified funds and multi cap funds earlier). Then they might also take small exposure to defensive sectors like pharmaceuticals and FMCG. You can still adopt this strategy. Provided it matches your investment objectives and risk profile.

Mutual fund advisors say all these noises should not influence their investment decisions. You should never alter your investment plans based on the prevailing market conditions. They say once you get into the habit, your plans will go haywire. Finally, mutual fund investors should be mindful of their goals and stick to their plans. Sure, investors can avoid risky investments.

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