3 Mutual Fund categories worth considering right now

Has the COVID conundrum left you wondering which Mutual Funds make sense right now? Here are three fund categories that are worth considering – in increasing order of risk tolerance!

Dynamic Asset Allocation Funds

Dynamic Asset Allocation funds present an ideal solution to the moderate risk taker’s quandary at the moment. Since they implement automatic portfolio rebalancing models that go against the grain of market movements.

They act as a safety mechanism against a host of behavioral biases that would otherwise plague any investor who’s endured the absurd roller-coaster ride that equity markets have witnessed since March! For multiple reasons, not all Dynamic Asset Allocation funds are worth considering right now; so be sure to seek the support of an expert Financial Advisor before you invest in one.

Value Funds

Traditionally, exogenous shocks such as COVID-19 have thrown the door wide open for value investing. When the going is good and hot money is in full flow, it is growth stocks that benefit the most. However, when a crisis results in severe market dislocations, sectoral leadership undergoes dramatic shifts. 

In times like these, the high margin of safety in value stocks makes them lucrative as contrarians come cherry-picking. For this very reason, Value Funds have always outperformed Growth Funds during post-crisis revivals. 

Risk-taking investors who have the patience to weather returns that are frustratingly uncorrelated with index movements, and have a time horizon of at least 3-5 years from today, should add value funds to their portfolios at this juncture. Invest in a staggered manner though.

Small-Cap Funds

Small-Cap Funds invest in stocks that lie beyond the top 250 companies by market capitalization. For the past three years, these stocks have received the drubbing of a lifetime – most of the companies in this space are now trading at bargain-basement discounts of 60%-80% to their January 2018 peaks. 

While they may well correct further and will likely be the last to recover from this cycle, their lucrative valuations are hard to ignore at this point. 

Small Caps tend to rally after Large and Mid-caps do; but when they take off, they switch on their afterburners and rocket ahead with such force that fence-sitters are left gasping in awe! If you’re a savvy investor who doesn’t break into a sweat every time markets move sideways, this is an excellent time as ever to accumulate units in a small-cap fund in a staggered manner. You’ll need to have a 5-year holding time horizon, though.

Confused about where to invest? Leave it to the experts! Get in touch with us today.

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