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Debt funds Vs Large-cap stocks: Where to invest in a falling market?

Share Market Today, Share Market update, Mutual fund, Fixed income funds, heavy outflows, January 2021, debt mutual funds, Liquid funds, Low Duration Fund, Money Market Fund, Medium to Long Duration Fund, Long Duration Fund, Gilt FundEven though this option comes with its own set of advantages and disadvantages, it is a better and safer option than investing in stocks, directly.

Even though the past year has been challenging for most, it has also helped people realize the importance of having the right investments and savings in place, to help out during such emergencies.

Industry experts say, along with choosing the right type of investments, one should also revisit one’s financial goals and asset allocation, and assess whether one is in line with what one had set out to achieve.

However, experts believe, when one is seeking investment success, one should keep in mind that managing risk doesn’t mean avoiding it altogether. Measured risk brings prospects of higher returns that can enrich one’s wealth creation. When advancing to riskier investment options, one needs to strap-and-buckle with risk management strategies to mitigate the losses.

Having said that, by entering the stock market, everyone wants to earn the jackpot – but what most don’t understand is that it doesn’t work like that. Experts say most people, in general, have this perception that investing in stocks directly will deliver them higher returns, however, eventually in the chase to earn higher returns, they end up loosing lose all their money. What most people, don’t understand is that in the stock market, risk and returns go hand in hand.

However, during market fall, which is a better option – investing in debt funds or accumulation of large-cap stocks?

Experts say one should invest in stocks and mutual funds only if it matches his/her investment objectives and risk tolerance. For instance, an aggressive investor who understands the stock market can invest in large-cap stocks. Furthermore, to get the best out of investments, as an alternative, one can look at investing in mutual funds. Even though it comes with its own set of advantages and disadvantages, it is a better and safer option than investing in stocks, directly.

Additionally, a conservative investor, on the other hand, can stick to debt funds that invest most of the assets in fixed income securities such as bonds and money market instruments. Experts say it is safer than equity investments that are affected by the volatility of the stock market.

Having said that, for a savvy investor experts say he/she can accumulate large-cap stocks of companies with strong fundamentals when the stock market falls. According to financial advisers, an investor should invest in large-cap mutual funds that invest predominantly in stocks of established companies to build the investor’s core portfolio at the beginning of the stock market. It forms around 60 to 70 per cent of the investor’s portfolio and offers stability and long-term appreciation.

Experts say, one could invest in large-cap funds through SIP, which helps individuals avoid timing the stock market. Debt funds invest in fixed income securities that are unaffected by the fluctuations in the stock market.

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