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Mutual funds have performed miserably over the past year. Whether you blame it on geopolitical tensions or macroeconomic factors or the much-anticipated correction after a prolonged bull run, the truth is that the investors have suffered and continue to suffer. Deepesh R Mehta, Designated Partner, Happy Investor Finserv LLP shares with MintGenie the impact of such a long bearish season on <a target="_blank" href="https://mintgenie.livemint.com/news/personal-finance/sips-score-over-lump-sum-investments-in-the-mutual-fund-industry-151645007610348" rel="dofollow">mutual fund</a> decisions and investments and necessary factors that can help investors to keep the market volatility at bay.

Q. How do geopolitical issues impact your portfolio and if balanced funds are an answer during such times?

Geopolitical issues impact the portfolio based on what assets the portfolio holds.

a. International equity funds are most affected as international funds invest in companies listed outside India which can have country-specific risks due to geopolitical tensions. b. Geopolitical issues sometimes lead to inflation as there is an imbalance in commodity supplies and if the portfolio is more inclined towards bonds and deposits, then the portfolio has a chance of not beating inflation.

Balanced funds could be an answer during these times as the element of equity helps to tide over inflationary risks. However, better-positioned products are dynamic asset allocation funds, multi-asset funds which can dynamically move assets from one asset to another asset class within the portfolio. This is good for someone who is a moderate risk profile investor. However, if the investor profile is aggressive, he could look at investing in FMCG funds, Consumption funds which are defensive portfolios during difficult times.

Q. Many people have recommended investors keep small amounts in cash that they must deploy in mutual funds when markets are down. Though there is no way to gauge when the market will touch the bottom, do you think such lump sum interventions during sharp corrections apart from SIP investments help to reach financial goals early?

Yes, it is always recommended to have a portion of your portfolio in <a target="_blank" href="https://mintgenie.livemint.com/news/personal-finance/investors-abandon-debt-funds-even-as-interest-rates-begin-to-rise-151652424648084" rel="dofollow">debt funds</a> to take tactical calls when markets fall This helps them to deploy to lower valuations which could benefit the investor by increasing the overall returns. However, this may not help to reach goals early as financial goals are linked to two aspects, one on how the investor behaves when markets fall and the second is what is the saving-to-income ratio. The idea of having debt funds/cash in the portfolio can be planned for a SIP investor as well. Normally we recommend SIP in debt funds as well. The money keeps accumulating month on month and at an ideal time, it can be switched to equities.

Q. What investment horizon do you suggest for investors looking to park their money in government securities and fixed maturity plans to escape market volatility?

One cannot escape <a target="_blank" href="https://mintgenie.livemint.com/news/personal-finance/5-investment-tricks-to-tide-over-inflation-and-market-volatility-151652438616716" rel="dofollow">market volatility</a> if he is an equity investor. <a target="_blank" href="https://mintgenie.livemint.com/news/markets/real-estate-investments-can-help-tide-over-the-current-market-volatility-ashish-khandelia-of-cetrus-capital-151657266770235" rel="dofollow">Market volatility</a> has to be managed by having a diversified portfolio and the portion of the portfolio which is required within four years to liquidate should never be exposed to equities. So, the investment horizon should be decided based on the investor's liquidity time frame and funds has to be suggested accordingly. Generally, <a target="_blank" href="https://mintgenie.livemint.com/news/personal-finance/how-to-include-debt-funds-in-your-long-term-investment-portfolio-151645606445995" rel="dofollow">debt funds</a> like FMPs and other <a target="_blank" href="https://mintgenie.livemint.com/news/personal-finance/should-you-invest-in-debt-funds-through-sip-151656387677819" rel="dofollow">debt funds</a>, in general, offer a taxation advantage only when the horizon is three years and above.

Q. Many sectoral funds have earned more returns than other mutual funds in the past few years. In the wake of volatility, investors are turning more selecting when it comes to investments? What kinds of sectors or sectoral funds do you think will perform in the near future?

Thematic funds like consumption funds can be evergreen funds in every portfolio and they are likely to do well most of the time. If an investor wants to tactical calls, he should be looking to invest in the banking and financial services sector fund, IT fund, housing sector, and auto sector as these sectors are available at a cheaper valuation.

Investments in balanced funds could help tide over inflationary risks, says Deepesh Mehta of Happy Investor Finserv

There is so much to learn about mutual funds, yet we know so little. The effect of macroeconomic factors is not limited to stocks alone; it affects mutual fund performance too. The end result is people reallocating their funds or rethinking their allocation to mutual funds.

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