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Five mutual fund strategies to keep in mind as markets hit new highs

Here are five factors an investor should keep in mind when markets are touching all-time highs.

mutual fundsMarkets are cyclic, and investing at a time when the indices are at a high makes people wary of losses from a potential fall. (Representative image: Pexels)

The BSE Sensex recently crossed the 61,000-mark. Whenever markets witness such sharp movements, it is natural for investors to be cautious about their next move. However, excessive caution can often be counter-productive, as investors often end up taking steps that are not in their best interest. Either they stop investing altogether or they sell their holdings and wait for corrections. Such actions may be good for someone who has an immediate need of money or to meet expenses in the near future. However, liquidating your investments when there is no need for money may not be a prudent decision and can potentially damage an your wealth creation journey.

So, what should an investor do when markets are hitting historic highs? In such a situation, there is a need to adopt a strategic approach while sticking to the basics of investing.

Here are five factors an investor should keep in mind when markets are touching all-time highs.

1. Avoid Lump Sum Investments In Equities

When markets are at uncomfortably higher levels, it is better to avoid large one-time investment in equity products. Instead, invest via systematic investment plans (SIPs). The SIP is quite an established tool of investment for generating long-term wealth. It ensures your investments are staggered and gives you the benefit of accumulating units at different levels, thus averaging out your costs of investments.

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2. Diversify Asset Allocation

A rigorous and well-thought-out asset allocation is essential for investments to succeed. It is not advisable to invest all your funds in equity products alone. Your investment portfolio must be balanced, with funds invested across asset classes, including debt assets. Concentrating investments to one particular asset class increases the risk: if a particular sector or fund, or the equity or debt market as a whole sees reverses, your entire investment could be impacted and your returns may not be on expected lines. Diversifying spreads out the risk and minimises shocks due to over-concentration of funds in one asset category.

3. Go For Dynamic Asset Allocation Funds

If you are an investor whose risk-taking capacity is low to moderate but want to invest in equity, look to investing in balanced funds with dynamic asset allocation. This category of funds dynamically balances the asset allocation depending on the market condition. At a time when stocks look overvalued, such funds cut exposure to stocks and increase investments in debt products. And when markets are in the oversold zone, these funds increase investments in equity and cut down their debt exposure. Such an investment strategy helps investors get the benefits of both debt and equity, and typically tends to give steady returns to investors irrespective of market conditions.

4. Switch Between Debt and Equity Funds Via STP

Systematic Transfer Plan, commonly known as STP, could be an effective tool in bullish market conditions. STP is an automated way of shifting funds from one scheme to another scheme of the same fund house. It is similar to SIP, but with the key difference that in STP the deduction of instalment happens from your existing scheme to the new fund you choose. It essentially means to invest the lump sum amount in a debt fund and set the deduction date for systematic transfer to the equity fund in a staggered manner.


At times when markets are at a high, investors who want to invest lump sum but not at the risk of timing the market should ideally opt for an STP. Here, they can invest the lump sum in a debt fund and then systematically transfer the invested amount to the chosen equity fund in a staggered manner – weekly, monthly, or quarterly – over a period of time. This helps an investor earn reasonable returns from the debt investments, and at the same time, the regular transfer of funds from debt schemes to equity schemes ensures they do not fall into the trap of timing the market.

5. Focus On Value Investing

Even when stock indices are at an all-time high, there are several stocks which are way behind their actual real worth. Value investing is an investment strategy that involves investing in such stocks which appear to be trading for less than their intrinsic value. Several funds have a portfolio of stocks that are undervalued but fundamentally strong. Investing in such funds help investors tap the growth opportunity in certain pockets of the market which remained weak despite key stock indices at a high.

Markets are cyclic, and investing at a time when the indices are at a high makes people wary of losses from a potential fall. However, terminating investments or putting them on hold simply because markets are too high can hamper your ability to meet financial goals. Instead, stay focused, diversify your asset allocation, and utilise strategies such as SIPs, STPs, and value investing to get maximum returns from your investments in the market.


The author is the CEO at Views expressed are that of the author.

First published on: 09-11-2021 at 09:55:44 am
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