In the last financial year, 41 million new demat accounts were opened by domestic brokerages. Total mutual fund folios touched 23.45 crore and retail MF folios, 18.58 crore. Around Rs26,000 crore comes into mutual funds through systematic investment plans (SIPs) alone every month.
The past few months, however, have not been rosy, with markets entering a correction phase. Equity mutual fund flows declined for three consecutive months, as investors, uncertain how the tariffs imposed by US President Donald Trump will pan out and how it will impact economy and capital markets, turned cautious. Investors who had pumped money into the markets started pulling out with equal vigour to minimise their losses.
Amid the upheavals, one thing many people are not focusing on enough is portfolio rebalancing. Essentially, it means reassessing a portfolio and adjusting it according to the goals and the prevailing risks. For instance, initially you might have decided to put half your money in equity and the other half in debt. But that composition might have changed over time. For instance, many people were aggressively investing in sectoral funds that were launched in the past few years. You need to comprehensively assess if it still makes sense to stay invested in those.
Also, you may have locked in funds in bank fixed deposits a few years ago when interest rates were high. Now that the RBI has started reducing rates, FD rates will also fall, and reassessing the investment makes sense.
Vaibhav Porwal, cofounder of the wealth management platform Dezerv, says portfolio rebalancing is a critical aspect of investing and it becomes a particularly necessary strategy in times like what we are in now. “Rebalancing allows investors to take advantage of current market conditions, where certain segments are available at discounted valuations. But more importantly, it helps reposition the portfolio to align with future potential, rather than past performance. In a market like this, capital appreciation will not be broad-based. There will be selective opportunities―certain sectors, certain asset classes―that will drive returns. And identifying and tilting toward those pockets requires thoughtful rebalancing,” he said.
It is crucial to assess a portfolio at least once in six months. “This way, when markets are high, you are able to sell some and replenish the liquidity and safety buckets. That gives you the confidence to stay put through a bear market or when there is a lot of turbulence in the market,” said Ram Medury, founder and CEO of Maxiom Wealth, an investment adviser.
Given the volatility in the market, Meduri recommends 10-15 per cent allocation in gold. Long been considered a safe haven asset, the yellow metal glows even more brightly during uncertain times. Porwal also says gold will continue playing a crucial role in managing portfolio risk. He suggested that it might be good for long-term investors to consider increasing equity exposure selectively.
But again, the stress is on having a well-diversified portfolio. The RBI’s monetary policy committee cut repo rate by 25 basis points in February and again in April. With expectation of more interest rate cuts, parking money in medium-duration bonds in the 2-3 year range offers a compelling opportunity to lock in yields, while also keeping the duration risk in check, said Porwal.