Page 33 - Banking Finance November 2024

ARTICLE

during market downturns. By continuing to invest be more resilient than others due to different asset
regularly, investors can take advantage of rupee cost allocations or sector exposures. If a particular fund
averaging, where they buy more units when prices consistently underperforms its peers over several
are low and fewer when prices are high. Over time, cycles, investors may need to consider reallocating
this reduces the overall cost of investment and assets.
provides a buffer against market volatility.
6. Focus on Defensive Sectors and Asset
Encouraging investors to continue their SIPs during
market lows can also capitalize on a recovery phase, Classes
amplifying returns as the market rebounds. In turbulent times, certain sectors, such as consumer
staples, healthcare, and utilities, tend to be more
3. Portfolio Diversification and Rebalancing resilient, as they offer essential products or services.
Similarly, debt funds and balanced funds, which
During market declines, diversified portfolios perform
better than concentrated ones, as they help in blend equity and debt, provide more stability.
Allocating a portion of the portfolio to these defensive
mitigating the risk associated with specific assets or
sectors or funds can reduce volatility and provide a
sectors. Diversifying across asset classes, such as debt
funds, international equities, and balanced funds, can cushion against market downturns.
help shield a portfolio from the full impact of a market
slump. Role of Distributors in Mitigating
Moreover, rebalancing allows investors to align their Investor Panic
portfolio with their risk tolerance and long-term When the stock market plunges, investors often
objectives. For instance, if equities underperform experience anxiety that can drive them to make hasty
relative to debt investments, rebalancing can involve decisions. In such times, distributors play a pivotal role
selling a portion of debt to buy equities at a lower in guiding and reassuring investors by:
price, preparing the portfolio for potential gains when 1. Providing Context and Educating on
the market recovers. Market Cycles
Distributors can ease investor fears by explaining
4. Maintaining Adequate Liquidity market cycles and historical recoveries after
An emergency fund can be essential for retail downturns. By showing how past corrections have
investors to avoid withdrawing from long-term rebounded into profitable phases, distributors can
investments during market downturns. Having highlight the importance of patience. Contextualizing
liquidity in short-term instruments, such as liquid
mutual funds or cash equivalents, helps investors
meet unforeseen expenses, thus preventing the
liquidation of assets at low valuations. Distributors
should advise clients to maintain at least 3-6 months
of expenses in an easily accessible fund.

5. Evaluating Fund Performance and
Adjusting Expectations
It is crucial for retail investors to assess the
performance of their mutual funds objectively,
especially in the context of market-wide declines. Not
all funds react equally to market volatility; some may

30 | 2024 | NOVEMBER | BANKING FINANCE