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Mutual fund strategies for different market cycles

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THERE are different cycles in the equity markets leading to varying performance of the equity-oriented funds. The sharp movements in the markets and consequently the funds often disrupt the entire position of investors. There are times when the investors are not able to do much about it especially during downturns. While looking for different ways to tackle this position, the investor can ensure that they consider using various options which are made easier by the presence of different kinds of mutual funds.

Different strategies: One of the ways in which a cyclical downturn in the equity markets can be tackled is by ensuring that the investor adopts different strategies for different part of their portfolio. This will enable them to have a different kind of exposure in their portfolio so that the entire portfolio is not affected in a similar manner in case of some specific developments.

There can also be a contrarian position that can be seen if the strategy turns out to be effective, so these are considered and then put into action.

Dividend yield strategy: A strategy that proves popular during tough times is that of selection of high dividend yielding stocks. These consist of companies that have a stable earnings and cash flow with a good business model so that they are able to pay a consistent dividend to the investors.

This helps in tackling the situation when in downturn, going gets tough for companies as sales and profits come under pressure. There are companies that have a consistent business flow that enables them to meet dividend expectations even during these

times. Further, when things turn around, there would be some capital appreciation in the stock price adding to the overall gains that would be received by the investor.

Funds available: The good news for the investor is that they can replicate this strategy by the help of dividend yield funds present in the market. These funds invest in companies that have a high dividend yield and seek to benefit from the opportunities offered by these companies.

Using these funds ensures that the investor does not have to do the work of identifying and choosing the companies for their investment. At the same time, they get a diversified holding even for the small amount that they actually invest.

Conservative and time specific: While dividend yield funds offer a good opportunity for many investors, there are few factors related to the investment that actually need attention. One is the conservative nature of the strategy which actually is sort of an alternative to investing purely in some debt fund due to the nature

of the investment, though there would be a higher risk here. The idea is to minimise the risk but still generate some returns from the investment on a steady basis.

The other thing that is equally important is that there are times when this strategy will work and times when it will not be effective.

When the valuations in the markets are depressed and equities not going anywhere, there would be interest witnessed in the adoption of the dividend yield strategy.

 

 

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  7. SBI Magnum Tax Gain Scheme 1993
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