As markets stay volatile, investors can explore these mutual fund categories. Check list here

Financial markets have been quite volatile lately. Benchmark index Nifty50 has already lost 14 percent off its peak of 26,277 it hit in September. Although it lost 16 percent by February-end, it has now pared some of the gains.

The declining trajectory of markets has naturally cast a shadow an mutual funds. The latest AMFI (Association of Mutual Funds in India) data revealed that inflows into equity mutual funds in February declined to ₹29, 303 crore against ₹39,687 crore in January, indicating a noticeable fall of 26 percent. Additionally, the equity inflow showed a declining trend in January as well when the inflow into equity schemes declined marginally by 3.6 percent month on month.

In this backdrop, wealth advisors suggest investors to invest only in a few select categories that are traditionally less vulnerable to volatility than others.

"When market is volatile, retail investors should consider investing in balanced advantage funds (or dynamic asset allocation funds), multi asset funds and large cap funds. Investment in these funds provides diversification, stability and long-term growth," says CA Deepak Gupta, Founder, Finvestmentpro.com

Mutual fund categories investors can opt for 

I. Large cap funds: Unlike small cap funds, large cap mutual funds are safer and less volatile. When markets turn volatile, large cap funds witness less volatility than their smaller counterparts. Therefore, it is recommended to opt for large cap mutual funds for long term wealth creation.

II. Value funds: These funds identify stocks that are currently undervalued but are expected to perform well over time as the value is unlocked. During volatility, value mutual funds can be a good investment opportunity for retail investors since they are available at an attractive valuation.

III. Dividend yield funds: These schemes invest predominantly in dividend yielding stocks with a minimum of 65 percent expsoure to equity. “These funds are less volatile in nature as they mostly invest in well-established companies which are in a position to offer regular dividends from their sustainable earnings,” says Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services.

IV. Dynamic asset allocation funds (Balanced advantage funds): These schemes have quite a flexible portfolio with investment in equity and debt which is managed dynamically with 0 percent to 100 percent in equity, and 0 to 100 percent in debt instruments.

So, when exposure to equity becomes too risky, fund manager may decide to lower the exposure in stocks and invest the proceeds in debt instruments.

Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.

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