DSP Mutual Fund Investors Advised to Reassess Portfolio Diversification Amid Market Volatility

Indian Equities Face Measured Returns as Investors Navigate Uncertain Markets

Kalpen Parekh, Managing Director and CEO of DSP Mutual Fund, is advising investors to adopt a more cautious approach in today's markets. At the Moneycontrol DEZERVE Wealth Summit in Bengaluru, Parekh emphasized the importance of reducing unnecessary activity and tempering return expectations. He believes that asset allocation should be the primary strategy, rather than constantly switching between funds and strategies.

Parekh's concern lies not in whether equities will outperform debt over the long term, but rather whether investors can maintain their investment horizon to capture those returns. He notes that markets are no longer cheap enough to deliver effortless gains, making it essential for investors to stay invested. Parekh suggests allocating more to equities when markets are very cheap and leaning towards multi-asset funds in moderate markets. However, when valuations become expensive, dynamic asset allocation funds should be used.

The current market environment is characterized by valuations that are neither excessively cheap nor overly expensive. This middle-ground phase can be challenging for investors, as markets no longer offer clear directional signals. Parekh emphasizes the importance of investor behavior during this period, as it can significantly impact investment outcomes.

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The effects of the current market correction are evident in individual investor portfolios, which have seen declines of 20% to 40% since the peak optimism around September 2024. In contrast, bond portfolios have continued to deliver steady positive returns. Parekh cautions that not having debt in a portfolio is equivalent to driving a car with two accelerators and no brakes or seatbelts.

Rather than rotating out of temporarily weak-performing funds, Parekh recommends increasing allocations to managers he believes are fundamentally strong. He views a good fund manager underperforming as similar to a great class experiencing temporary form. Parekh's investment strategy is focused on maintaining steady returns, rather than seeking blockbuster gains. He believes that staying invested in the right asset classes is essential to beating inflation.

Note: The performance figures in the table represent approximate declines or gains in the respective asset classes since the peak optimism around September 2024.

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