Mutual Fund: After 2024, the stock market continues to decline in the new year 2025. In such a situation, mutual fund (MF) investors are wondering whether they should continue their investment or not. If experts are to be believed, they are advising MF investors to be cautious and avoid big investments. Let us tell you that till January 13, 2025, Nifty 50 has declined by 2.4 percent. Nifty 500 has declined 5.05 percent during the same period. Apart from this, Nifty Midcap 150 has fallen by 8 percent and Nifty Smallcap 250 has fallen by 9 percent.
According to experts, the current decline in the Indian equity market can be attributed to several factors, such as expensive valuations, slowing domestic growth rate, limited rate cutting cycles by the US Federal Reserve and the strength of the US dollar.
Experts’ opinion on market fluctuations
“A key concern for India is the impact of the Federal Reserve’s limited rate cut cycle. Even if domestic inflation stabilizes around 4 per cent, the Reserve Bank of India (RBI) is likely to aggressively reduce rates,” said Kunal Walia, Founder, Statlane. He believes that the rupee will not be able to cut further, because in such a situation RBI may have to take more aggressive steps to strengthen the rupee. that investors should be cautious And it is important to adapt to the changing market.”
Vinay Pahadia, Chief Investment Officer, PGIM India Mutual Fund, said that despite global challenges, India is the fastest growing economy among major countries, which shows its resilience. Pahadia is bullish on investing in high-growth and good-quality companies with medium to long-term investment horizons.
What should be the strategy of MF investors?
Market fluctuations continue, so financial experts are advising MF investors to exercise caution. As valuations increase further, the possibility of a sudden decline may become higher. Also, it is important to understand that the equity market keeps fluctuating. Furthermore, mutual fund (MF) strategies are quite different from investing directly in shares. Unlike stock trading, mutual fund investors generally do not focus on booking quick profits, stopping new investments or taking major decisions from time to time based on short-term market fluctuations. They adopt long term approach.
What should SIP investors do?
Long term investors with well-diversified portfolios who invest consistently through Systematic Investment Plan (SIP) should remain invested to achieve their financial goals. Although a stronger US dollar could potentially negatively impact global market sentiment and cause a correction, markets with stronger domestic economies generally recover faster.
For example, the Indian economy is likely to be stronger in the long term than the economies of smaller countries. For this reason, investors may consider increasing investments in their portfolio during market downturns.
Experts are bullish on companies with strong fundamentals
According to Motilal Oswal Financial Services, a significant change was seen in the stock allocation of sectors and funds in 2024. The weightage of defensive increased by 60 basis points (bps) to 30.3 per cent due to increase in weightage of healthcare and telecom, while consumer and utility eased. Experts believe that the market may move away from sectors with low-growth, low-quality segments towards companies with strong fundamentals and sustainable growth prospects.
Diversified flexi-cap fund can be a good option
Sectoral funds generally perform in cycles, so a diversified flexi-cap fund can be a good option, as it provides fund managers the flexibility to adapt to changing conditions in market caps. Additionally, by distributing investments across multiple asset classes such as stocks, bonds, real estate and cash, the poor performance of one investment can be compensated for by another investment. Shares and bonds are the basic structure of any portfolio, so other asset classes like gold and real estate help further diversify your assets.
An investor’s approach to market downturns should be in line with his financial goals, risk appetite and investment time horizon. It is very important to recognize the long term growth potential of stocks. It is advisable that you consult your financial advisors before making any portfolio adjustments.