If the majority of your asset allocation is skewed towards bluechip stocks, the current market situation has ascertained the fact that the best stock picking strategy and not balancing your portfolio at regular intervals can go wrong.
Investors hold on to bluechip or large-cap stocks forever assuming these stocks will give them higher returns as compared to others and nothing significant will go wrong. However, holding on to the notion that bluechip stocks are always rewarding can cost your dearly as in the past, many large conglomerates, which boomed during a certain period, went kaput and their stocks rallying at all-time high left investors with a huge hole in their pockets.
But, it doesn’t mean you do not look at bluechip or large-cap stocks for long-term investment purposes. What you can certainly do is get the growth of large-cap stocks through large-cap mutual funds and build a risk-averse portfolio, which can cushion your losses.
By adding a mix of large-cap mutual funds, you can tolerate a bearish market without a greater fear of losing lump sum amount at once.
Large-cap funds, when analysed, tend to give steady returns in a gyrating market as compared to other asset classes and do not get beaten by market fluctuations. For instance, the CAGR returns of BSE100 stood at 4.48%, whereas, the CAGR returns of large-cap equity mutual funds was 6.29% over the same time period as on March 20, 2020. Likewise, the 5-year returns of BSE100 and Large-cap Equity Mutual funds stood at 0.93% and 2.3%.
Also, since mutual funds are managed by seasoned fund managers, they take actions that minimize the risk and generate modest returns. Lately, the investor confidence in equity mutual funds has also increased. As per the data by the Association of Mutual Funds in India, open ended equity-oriented mutual fund schemes saw net inflows of Rs 10,796 crore in February, the highest monthly inflow into the category on the back of sharp declines in the stock market. Meanwhile, the equity markets represented by the Nifty 50 fell more than 6% during the month.
Moreover, mutual funds offer diversification and you can invest in them at regular intervals through Systematic Investment Plan (SIP), avoiding you to make a lump-sum payment like in stock markets.
Since the stock market is affected by a string of factors such as current news or events, economic data, confidence of investors and even rumours, it is expected to experience few ups and downs.
Hence, it is important to remember the reasons you entered the stock market and the financial goals, which won’t be achieved on the basis on assumptions. Here, large-cap mutual funds can go a long way in providing you growth and financial security.
For more information you can visit www.sbimf.com
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