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Should you go for portfolio diversification amid market volatility? Here's what experts suggest

Should you go for portfolio diversification amid market volatility? Here's what experts suggest

Should you go for portfolio diversification amid market volatility? Here's what experts suggest
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By Anshul  Mar 30, 2020 7:36:36 AM IST (Updated)

Investors have lost 20-30 percent of the returns over the last 1-2 months, according to a Motilal Oswal report.

Equity markets have been quite volatile in recent times, thanks to the dread coronavirus has created. Investors have lost 20-30 percent of the returns over the last 1-2 months, according to a Motilal Oswal report. With index valuations at historical lows – investors must be having a second thought if it is the right time to diversify investments? If yes, where should they put their hard-earned money?

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Let’s see what experts suggest on diversifying investment portfolio:
Investors who are overweight on equities may have witnessed large portfolio losses recently. Such people, experts say, should not rush into reducing their equity exposures to diversify.
“Instead the best thing to do is to stop looking at day to day movements if invested in mutual funds. But if somebody has direct equity portfolio, it is a good time to switch from average companies to great ones,” suggests Raghvendra Nath, MD, Ladderup Wealth Management.
For someone who is underweight on equities, these are however not to be missed times.
“Keep shifting money from debt to equity during this period,” he adds.
Pratik Oswal, Head - Passive Fund Business, Motilal Oswal Asset Management Company explains that it’s always good to keep some liquidity in case the present scenario becomes worse.
“It is not a good idea to add too many schemes. But, if one feels the need to diversify, it is better to buy categories/funds that match the risk profile. Conservative investors should stick to large-cap funds and debts,” he says.
Diversifying slowly in next 1-2 years is, however, a good idea.
“Add debt, gold, international funds so that the portfolio is ready for the next crisis (as per the risk profile),” explains Oswal.
Gold may not have high returns over long-term horizons but is a great hedge when equity falls. It lowers the portfolio volatility and gives some bit of downside protection. There are many ways of investing in gold such as sovereign bonds and gold ETFs.
International fund is also a good option.
“Geographical diversification can fight the rupee depreciation and give diversification. With global stock markets also falling - it's a great time to load them up,” he adds.
Jashan Arora, Director, Master Capital Services, meanwhile, suggests that having the right investment mix for the situation is critical in good times in the financial markets and during downturns.
"While investors can’t control the ups and downs in the economy, diversification can sometimes help in limiting or minimizing the impact on the portfolio. Investors can look for asset classes that have low or negative correlations so that if one moves down the other tends to counteract it," he explains.
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