scorecardresearchFinancial products you can look at during volatile times

Financial products you can look at during volatile times

Updated: 25 May 2022, 08:24 AM IST

It is vital to map the financial product to the correct time. This goes a long way in comprising a sustainable portfolio.

We explore whether this is the right time for fixed income instruments, bonds or equity or debt funds.

We explore whether this is the right time for fixed income instruments, bonds or equity or debt funds.

When you choose investment options, there are a number of factors to be taken care of. First and foremost, you need to decide how much money do you plan to invest and how many financial instruments you are willing to invest into.

Another key factor that should weigh heavily in your investment decision-making is the objective of your investment i.e., whether you want to earn regular income from it or increase the size of capital. Another important consideration is the investment horizon.

This means when you invest for a 10-year time horizon, the investment choices you make now would be different from the ones you would otherwise make.

Finally, one of the most important considerations, on which we would now focus, is to determine whether the proposed financial instrument will be the right one in the current market scenario or not.

Significance of right timing

It is imperative to select financial instruments based on the impact of timing on it. For example, when you are contributing money to EPF or PPF or some products such as Sukanya Samriddhi, then you should be aware that they are meant for growth in the long term.

Consequently, it is advisable to overlook the market volatility before investing in these products. At the same time, remember that the growth accrued by these products would invariably be lower than that of other more aggressive products such as equity.

Similarly, FDs are a good income generating asset but only when you lock them when the rates are higher. Investing in them when the rates are about to rise is not a wise thing to do.

The right options

Amid the ongoing market uncertainty and in run-up to rate hikes, we explore what kind of investments can be made during this time: fixed income instruments, fixed deposits, equity or bond funds.


Tenure of govt bonds. 

On this, Amol Joshi, founder of Plan Rupee Investment Services says, “First of all, this is not the right time to invest in FDs. If banks raise interest rates by another 50-100 basis points, then you will get stuck with lower rates. Secondly, when it comes to equity, they are determined by the long-term financial goals, so the ongoing circumstances don’t matter much.”

About bonds, he says, “Investors should avoid long duration bond and constant maturity funds. They should, instead, invest in either shorter duration bonds or medium duration with a roll down strategy.”

For the uninitiated, a constant maturity fund invests in a mix of government bonds with 10-year maturity. Regardless of interest rate, the fund’s portfolio duration is maintained at 10 years.

As far as mutual funds are concerned, investors can seriously consider balanced advantage funds as “they are apt when the market is volatile,” he says.

Multi asset allocation

Financial experts also advice that investors, particularly conservative ones, should stay away from huge risk,  and explore multi asset allocation funds.

S Sridharan, founder and principal officer, Wealth Ladder Direct, says, “As the market is volatile and bond yields are rising, investors can explore the stock options which are low in volatility. Conservative investors should stay away from risk and hence, they can explore multi asset allocation funds. As far as debt funds are concerned, investors can look at dynamic bond funds. They can also explore bonds with ultra-short term or short duration bonds.”

Role of bonds in portfolio.

Another factor that should matter in your decision-making process is whether you understand the product. No matter how tempting a dish might appear on a plate, you should not try it unless you know what exactly it is. 

Because after you have eaten it, chewing should not be a hassle at all.


Disclaimer: Please speak to a SEBI-registered investment advisor before making a financial investment decision. 

First Published: 25 May 2022, 08:24 AM IST