Why does it make sense to invest in THESE two equity mutual fund categories during market volatility? Experts answer | Mint

Stock market has been fairly volatile these days. After rising by 0.47 percent on Monday, Nifty50 closed with a loss of 82 points, or 0.33 per cent on Tuesday. The benchmark indices have been swinging wildly in the past few weeks amid uncertainty around the Trump tariffs, Ukraine war and most recently over tension between India and Pakistan over Pahalgam terror attacks on April 22.

Investors who tend to invest in equity mutual funds often struggle to choose the categories which are robust enough to face these swings seamlessly. So, which are the safest equity mutual fund categories to invest into? Most experts recommend large cap mutual funds while cautioning investors against investing in small cap schemes, which are seen to be too risky during market volatility.

Mutual fund categories

Broadly, the fund categories wherein investors are recommended to invest without having to worry over the ongoing volatility are flexi cap mutual funds and dynamic asset allocation funds.

“Both the funds present decent opportunity for the first-time investors or investors who are looking to invest without the need of rebalancing in regular go. Flexicap funds allow the fund managers to swiftly take exposure in companies without the need to have a fix mandate which allows effortless movements and in a way reduced volatility. In the present market conditions, they are a better fit allowing investors to take exposure across market capitalisation,” says Abhishek Dev, Co-Founder and CEO Epsilon Money.

Sridharan S., a Sebi-registered investment advisor and founder of Wealth Ladder Direct, recommends equity investors to opt for dynamic asset allocation funds where the risk of investing is low. “Most fund houses which run these schemes predominantly invest in the large caps since they are easy to sell and it is easy for them to move between different asset classes. On the other hand, risk is higher in case of flexi caps where 80 to 90 percent of investment is done in the equity assets. The role of fund manager is very crucial in this,” says Sridharan. 

“Dynamic asset allocation funds enable fund managers to take allocation across different asset classes based on their view. This can potentially lead to increased alpha if the timing is right and investor doesn’t have to worry about overheated valuations in certain asset classes as fund manager could easily trim the exposure,” adds Abhishek Dev.

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