Russian President Vladimir Putin launched a military operation in Ukraine on February 24, 2022, as explosions were heard countrywide, and its foreign minister warned that a “full-scale invasion” was underway. With geopolitical tensions escalating amidst the Russia Ukraine crisis, global markets have witnessed jaw-dropping dips. But that’s not all that’s worrying the market.
Skyrocketing inflation in the US, supply-chain disruptions globally, overheating crude oil prices, the possibility of interest rate hikes, and their consequences on the economy made the markets jittery. Against this backdrop, many investors are asking the question- where should I invest to earn market-beating returns? The short answer is mutual fund (MF) schemes.
When the market is down, you can purchase more units of the MF scheme and take a ‘moment advantage’ of the stock market dip. Here, if you invest with a SIP regularly, you can average your purchase cost and get a higher number of units. This will maximise your returns.
s investments tend to perform well in the long run. They leverage the power of compounding to grow into a large corpus over time. So, the longer your investment horizon, the higher the possibility of superior returns. With MF schemes, investors can ignore short-term fluctuations and dips in the market so that the investment gets its time to grow. At the same time, they can buy more at lower costs.
Investing in equity MF schemes helps beat inflation and build a large corpus over time for your long-term goals. Let’s understand which investment strategy can work the best in a crisis.
What To Do When Market Is Jittery?
When the market is jittery, goal-based financial planning is key to building a corpus. Once you chalk out the goals, it’s time for asset allocation when investing in mutual funds. Now that you have chosen the assets, the next step is investment choice making. That’s where the core and satellite portfolio strategy and investing in a long-term horizon can help. Read on to understand in detail.
Additional Read –What Is Value Investing? Know All About It
#1 Invest in Core and Satellite portfolio strategy
You devise a strategic portfolio based on the ‘Core and Satellite’ investment approach. Here, ‘Core’ refers to your portfolio’s more steady, long-term holdings. On the other hand, the term ‘Satellite’ refers to the strategic portion that helps boost the portfolio’s overall returns across market conditions. This strategy primarily works when markets are expected to be highly volatile.
The core portfolio offers stability and is aims to meet vital long-term goals such as making a retirement kitty or sponsoring a child’s higher education. In turn, satellites allow you to take relatively higher risks to collect meatier portfolio returns. One of the widely recommended core-satellite mixes is 80:20. Here, 80% of the portfolio comprises a core portfolio while the rest is satellite.
Or, you can go for a 65-70% mix where your equity MF portfolio can comprise large-cap funds, multi-cap funds, and value style funds. The ‘Satellite’ holdings can have 30-35% constituted of mid-cap funds, aggressive hybrid funds, and large and mid-cap funds.
This investment approach helps you diversify your funds across categories and investment styles, reducing portfolio risk. This way, you’ll have a financial cushioning during the bear phase, and your MF schemes will outperform during a bull phase.
If your portfolio is strategically placed, there’s no need for constantly churning the portfolio. Besides, you will be prepared to tide over the market volatility. ‘
Additional Read – Investment when market is high
#2 Invest for a long term
Another critical mantra for making MF investments is that if you park your funds in equity schemes, choose a longer-term like 4-7 years. You can use a SIP calculator to estimate the returns expected.
In a long-term strategy, your investments are compounded a higher number of times. And that way, your returns increase. Hence, investing in a long-term horizon mitigates market volatility and overall risk while maximising profits.
Over to you
When the market suffers from volatility, there’s no need to panic. You can buy more units in a new MF scheme or continue parking funds in your existing scheme. All you need to do is indulge in long-term, goal-based investing. Download the Moneyfy app today for all your investment needs and kick start your investing journey today.