The MF playbook you should consider now | Economic Times

Mumbai: Here’s one decision point you’d rather leave to the expert: Whether to take or leave equities. By any measure, predicting the future isn’t easy — and it’s mighty difficult now, given the equal weights in favour or against.Sample this: Valuations are rich, there’s a likely second wave of the pandemic, and bond yields in the US are beginning to harden. And then there are counter-arguments of a V-shaped recovery, documented Federal Reserve commitment of sufficient notice ahead of a ‘tapering’, and a stable rupee cushioned by a healthy forex cover.On balance, however, mutual fund experts believe the former set weighs on the latter — even if just a bit. So, investors looking to build low-cost equity portfolios through passive funds could start by allocating only a third to equities and increasing the commitments in line with a decline in the headline indices. The rest of the cash should go to fixed income and gold.“Investors could consider their equity allocation in a mix of Nifty 50, Nifty Next 50 and Nifty Midcap 150 funds. However, it is important to be disciplined and make sure that allocation increases, when the markets fall, to generate alpha,” said Harshvardhan Roongta, CFP, Roongta Securities.For readymade portfolios, savers could opt for balanced advantage funds, which allocate to equities based on market valuations. “The markets are trading at a price higher than the fair value,” said Vinay Paharia, CIO, Union Mutual Fund. Union Balanced Advantage Fund has reduced equity allocation to the lowest possible 30 per cent, with the rest in debt and arbitrage.Financial planners believe the equity allocation in a balanced advantage fund conveys a fund manager’s view on the market. These funds typically allocate between 30 and 80 per cent to equities. After the recent sharp rally, most funds have 30-40 per cent as of February end, which indicates valuations are rich.ICICI Prudential Balanced Advantage Fund, with assets of Rs 30,000 crore, has brought down its equity allocation to 37.91 per cent as of February, the lowest in the past 22 months. The fund had increased its equity allocation to 74 per cent in March 2020. As valuations surged, equity allocations were brought down to 68 per cent by June, 59 per cent in October, and then to 43 per cent in January.Motilal Oswal Dynamic Fund uses an in-house MOVI indicator (Motilal Oswal Value Index) to gauge valuations. Currently, the 30-day moving average is at 135, suggesting that the markets are overvalued: The scheme has a 37.1 per cent allocation to equity.