The equity market has been a veritable treasure trove for an investor who is disciplined and is ready to stay invested with a long term view. There is no doubt that the market can help generate attractive returns over the long-term — but the investor has to be invested in the right set of asset classes and at the right time. If you have been looking for ways to bolster your portfolio, it is time to take into consideration the following factors and accordingly make the ideal set of investment choices.

India’s stable growth prospects, and a relatively calm market have acted as catalysts for increasing retail interest.

The Indian stock market has managed to outperform almost all emerging markets with a considerable margin on both one- and five-year basis. While this is largely positive for the market, it also means that equity valuations remain elevated, especially in comparison with global peers and the long-term averages.

With the markets likely to stay volatile in the near term, and a possible recession rearing its head in several developed economies, you should consider channelling investments towards multiple asset classes.

Even if a global recession were to play out, the impact on India will be minimal. Infact, it may help India overcome some of our present day challenges in the form of lower current account deficit and moderating oil prices.

There are three things a retail investor should be mindful of:

Invest in debt mutual funds

The consistent rise in interest rates across global banks has led to increased appetite for debt mutual funds. Due to the higher yields now visible across durations, debt is becoming an attractive investment opportunity. Further, with the repo rate likely to increase in the upcoming policy meetings, now is an excellent time to boost your exposure in higher accrual schemes and dynamic duration funds. Not only do debt mutual funds protect you from the constant volatility in equities but they also offer you potentially stable returns.

Retail investors can also consider investing in accrual categories such as medium term and credit risk category funds. Another option is dynamic bond funds wherein the fund seeks to benefit from interest rate volatility by managing durations dynamically.

Here, the fund manager has very high flexibility on duration and credit which works to the benefit of investors.

Based on the interest rate scenario, the scheme invests in corporate bonds and G-Secs. In effect, the scheme can generate reasonable risk-adjusted returns across various market conditions. On a tactical basis, investors can consider floating rate bond funds.

For short-term fund parking requirements, investors can consider liquid and ultra-short bond funds given their attractive yields over traditional options. Investors should not make the mistake of keeping away from debt funds looking at the past returns.

Choose the SIP route

As an investor, you can participate in the equity market through both lump sum and systematic investment plans (SIP). Given that the equity valuations are rich, for lump sum investments, investors can consider investing in categories such as the balanced advantage or the multi-asset category wherein the fund manager will deploy investments across asset classes based on the risk reward assessment.

Investors can continue with their SIPs and make use of features such as booster SIP/STP to achieve longterm financial goals in a disciplined and systematic manner. Between large cap, mid cap and small cap, we are positive on large cap and flexi cap at this point in time. After the sharp selling by FIIs, large caps are better placed on valuation terms than mid and small caps. Given this setup, staggered investing via SIP is likely to work.

Invest in gold and silver ETF

Another investment option you can consider is gold and silver exchange-traded funds or fund of funds as these allow you to diversify your portfolio. Furthermore, such assets also act as a hedge against currency depreciation.

As the investing community comes to terms with adverse developments in assets such as crypto currency, it is very likely that there could be an increased allocation to commodities such as gold and silver.

Since silver has limited co-relation to other asset classes, investors across the risk spectrum can consider investing in silver. In each of the past three periods of crisis (Subprime mortgage, taper tantrum and Covid -19) which affected global financial markets, silver has outperformed equity as an asset class. In effect, it enables in improving the overall risk adjusted return of the portfolio.

Investors can also consider taking exposure to commodities through a multi-asset fund, which has the flexibility to invest across three or more asset classes.

The writer is ED and CIO, ICICI Prudential AMC