This portfolio is market crash proof.

Our markets witnessed sharp correction in February and march 2018. This was not a crash but a correction and the long-term trend still remains bullish. However, for many of us this was enough to create panic and take wrong decisions. Some of us sold our mutual fund holdings or stopped SIP. So now when the markets are recovering and we are witnessing a pullback rally those who sold or stopped SIP for MFs are now regretting.

This is most happening scenario specially for first time investors. We must understand the difference between market crash and market correction. For correction no action need to be taken but for deep crash we need to re allocate the MF portfolio. Now the question is how to differentiate between correction and crash. The major differentiating factor is the economic parameters which worsen in market crash however in market correction they remain unchanged and it’s mostly triggered by some bad news. Wait for my another post on how to differentiate between market correction and crash.
The thumb rule for mutual fund investing is do not stop your SIP when markets are falling. Infect falling markets are best time to continue with SIP. Only in case if you foresee a deep market recession you revise your mutual fund allocation in terms of asset class. In this article I will formulate a mutual fund portfolio which is almost recession proof which means it’s downside is extremely limited even in worst of market crash and appreciates well in bull run. Sounds too good to be true?
Well with asset allocation this is very much possible. The portfolio is optimized in such a way that downside due to one asset class is largely neutralized with upside in another asset class. This is true because markets do not crash entirely. For example, fall in equity will result in rise in gold, bond etc. I have also taken utmost care to make sure that upside in not compromised in case of bull run. Markets never go unidirectional even the worst of market crash has small bull runs in the middle called relief rally. So lets have a look on this portfolio with equal % allocation
1. HDFC small cap 20%
2. Motilal oswal long term equity 20%
3. L&T emerging equity 20%
4. Franklin india low duration 20%
5. UTI dynamic bond 15%
6. UTI ETF gold 5%
The above portfolio is very unlikely to fall more than 10% even in worst market crashes which I have considered at 40%+. The portfolio is designed for an investor of a medium risk appetite. Allocation will change as per your risk profile. The portfolio has asset allocation is 60% equity 35% debt and 5 % gold with further diversification in the individual asset class. You can verify yourself fall in portfolio during feb-march market correction. The article is not an investment advise but for educational purpose only. Exact portfolio will vary across the investor based on his risk profile.

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