SPREADING HOPE

Reallocating portfolios during market volatility helps investors spread risk

Indian equity markets have been on a roll in the last few months and have touched an all-time high recently. While one can joyfully look at the portfolio and enjoy the gains made over time, this is also the right time to re-allocate portfolios according to one's risk profile.

Since markets have been continuing the northbound journey, investors' asset allocation might have gone for a toss. Investors can be happy with the gains they have made over time, but markets are not always going to remain at elevated levels.

It is likely that markets will correct due to expensive valuations. But we are not guessing when it will fall. However, we should be prepared for volatility in the markets to protect our portfolios from downside risks.

There are multiple ways to reallocate the portfolio, like increasing the exposure towards debt or moving some money from mid-caps to large-caps or even opting for passive funds whether its exchange-traded funds (ETFs) or index funds.

Moving towards debt funds will not deliver any extraordinary returns. But they can protect investors' investments from any significant market crash. In this article we throw some light on how investors should manage their portfolios when markets are high.

Diversification in equity funds Last two to three years have seen intense attraction towards mid-caps and small-cap funds. In three years, small-cap funds have on an average given returns of 31.5%, while mid-cap funds have gained 24%. On the other hand, large-cap funds have delivered three years returns of 15.5%.

With high valuations in mid-cap and small-cap stocks, it appears to be the right time to consider moving some portion of profits towards large-cap funds. Large-cap funds invested at least 80% of their assets in large stocks.