mutual fund investors: the stock market is volatile. How can mutual fund investors be defensive?

We all know that the market is in a delicate phase. It’s volatile and when you think the weakness in sentiment is going to persist, the market surprises and gains 1,000 points. Of course, there are plenty of negative factors to consider – both global and domestic factors. Imminent rate hike, inflation, covid, economy… you can choose one that gets on your nerves. Is this the reason why many investors want to play “on the defensive”? You will hear this sentence: you have to play defensively in this market. It seems, being careful is replaced by defensive moves.

Mutual fund advisors believe that investors are influenced by stock market jargon. For example, everyone is taking refuge in good quality blue chip stocks these days. Oh, add also, to attractive valuations. This is the defensive strategy of most stock market investors. They will also add beaten sectors that they believe will bounce back. Can mutual fund investors replicate this strategy?

Mutual fund advisers say the strategy cannot be replicated. “Investing in individual stocks offers a lot of choice, but a mutual fund investor is buying a portfolio. Additionally, fund managers would employ such strategies to protect the portfolio,” says one advisor who believes investors should not engage in micro-management. The whole idea of ​​investing in mutual funds is to leave the investment decisions to the fund managers, advisers say. In short, you don’t have to do anything more.

Let’s take a look at what investors traditionally did in a turbulent phase of the market. Most advisers would ask investors to stick to large-cap funds and flexible-cap funds (previously these were diversified funds and multi-cap funds). Then they could also take a small exposure to defensive sectors like pharmaceuticals and consumer packaged goods. You can still adopt this strategy. Provided it matches your investment objectives and risk profile.

Mutual fund advisors say all this noise shouldn’t influence their investment decisions. You should never change your investment plans based on prevailing market conditions. They say once you get used to it, your plans will go haywire. Finally, mutual fund investors need to be aware of their goals and stick to their plans. Of course, investors can avoid risky investments.


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