You can bank on mutual funds when markets are volatile

Accumulation of wealth through investments in mutual fund schemes is probably the best bet for retail investors - more so, in the current market conditions.

Investment advisers say in times of panic seasoned fund managers can protect your money better than many others and during a rally they can make the money grow faster than the overall market.

"It is normal to panic in these situations , but these are times when one can buy cheap," says Dhirendra Kumar, CEO, Value Research, a fund industry analytics and advisory firm. "There are long-term investment benefits from buying in a panic."

One of the first steps while investing in an MF scheme is to identify the purpose of such an investment: Whether the person is investing to accumulate wealth over a long period of time or the investment is for regular income. In the first case, a major portion of the investments should be in equities while in the other case it should be tilted towards debt funds. In the latter, to gain some upside from any rally in shares, a part of the investment could also be in monthly income plans (MIPs), advisers say. The combination of debt-equity exposure should change as the age profile changes. Here, the rule of thumb is that the percentage of equity exposure in a portfolio should be equal to 100 minus the investor's age.

"When one is in the accumulation stage over a long period, the portfolio should have high equity exposure," says Sumeet Vaid, founder & CEO, Freedom Financial Planners. "When the investment is for distribution (say the need for regular income for a retiree ), the portfolio could be 60% in debt, 30% in equity and 10% in gold funds," he says.

In the current market , some top MF schemes that Vaid prefers are HDFC Equity, DSP Blackrock Top 100, ICICI Prudential Focus Equity and Discovery and IDFC Premium , while on the debt side it is Birla Sun Life Dynamic Bond Fund and Reliance Gold Fund for investments in the yellow metal. Over the last year, while gold funds remain a clear winner with a return of nearly 41%, income funds have returned 9.6% and balanced funds a little over 8%.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/you-can-bank-on-mutual-funds-when-markets-are-volatile/articleshow/9575305.cms