Its The Choice That Matters

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

The stock market continues to remain volatile. While market volatility is a natural phenomenon and will always remain an integral part of stock market investing, investors who follow a disciplined approach can tackle this challenge well. In fact, volatility is not the only challenge that investors have to contend with. The prominent ones are how to decide on exposure to different market-caps, when to sell and the size of the fund. Here’s how these challenges can be tackled by investors. 

Exposure to Different Market-Caps
The market-cap of a company signifies its market value, which is equal to the total number of shares outstanding multiplied by the current stock price. The market-cap has a role to play in the kind of returns the stock might deliver and the riskiness or volatility that one may have to encounter from the stock. For example, large companies are usually more stable during the turbulent periods and the Mid-Cap and Small-Cap companies are more vulnerable.

Since risk profile, time horizon and investment objectives play an important role in deciding the portfolio composition, there cannot be a standard combination that works for all kinds of investors. If you are unable to decide the right mix, begin investing with flexi-cap that invest predominantly in Large-Cap stocks and have a healthy exposure to mid-cap stocks. If you are one of those investors who have the wherewithal to decide what kind of mix will be suitable for you as well as know how to rebalance this exposure periodically, you can opt for funds investing in different market segments. 

Timing the Selling
It is important to remember that any decision to sell your fund has to be a well thought one and not based on some immediate urge. Equally important is to remember that as an investor you have the cushion of your fund manager weeding out the over-priced stocks and laggards out of the portfolio. The key,therefore, is to focus on fund selection. If you are invested in a good fund from a fund house with a proven track record, most of your worries are taken care of.

This decision itself will save you of a lot of botheration related to keeping track of the market. If you decide to sell, consider doing it gradually. All of us know that systematic investing is the best way for investing. It is also important to know that selling gradually also ensures certain benefits. Remember, selling non-performing funds can save you money. Don’t forget, you invest to make money and not to make losses. 

"If you are invested in a good fund from a fund house with a proven track record, most of your worries are taken care of"

Size of the Fund
It is commonly believed that a fund can become a victim of its own success. In other words, it can become too unwieldy to manage efficiently. However, it is important to look at the fund size in the context of its nature and investment style. A fund’s performance can suffer in case it outgrows its investment style. For example, a mid-cap fund where the success depends on how effectively the fund manager does the stock picking, the large size of the fund may force him to make certain compromises in terms of the investment approach

However, the fund size does not matter for some of the fund types. For example, it is much easier for a Debt Fund manager to manage a large fund compared to an equity fund. Considering that the size of the debt market is much bigger than the equity market, there are plenty of options available for the fund manager.