{"id":1806,"date":"2020-04-09T14:09:51","date_gmt":"2020-04-09T14:09:51","guid":{"rendered":"https:\/\/blog.certifiedfinancialguardian.com\/?p=1806"},"modified":"2020-04-09T14:43:54","modified_gmt":"2020-04-09T14:43:54","slug":"how-to-protect-your-clients-mutual-fund-portfolio-in-the-covid-19-pandemic","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2020\/04\/09\/how-to-protect-your-clients-mutual-fund-portfolio-in-the-covid-19-pandemic\/","title":{"rendered":"How to Protect Your Clients\u2019 Mutual Fund Portfolio in the COVID-19 Pandemic"},"content":{"rendered":"\n

The entire world is in damage-saving mode. Coronavirus or COVID-19 pandemic\nhas turned the world upside down. At the beginning of the year 2020, nobody\nwould have thought that we were going to face such a catastrophic event just\nwithin a few weeks. India reported its first COVID-19 case on January 30th<\/sup>\n2020, and since then the number of confirmed COVID-19 cases are on the rise. <\/p>\n\n\n\n

Newsrooms are buzzing with stories around COVID-19. Indeed COVID-19 has\ntaken centre stage and it is detrimentally playing out on equity markets as\nwell. Since the all-time high of the S&P BSE Sensex of 42,273.87 points\n(made on January 20, 2020), we have nosedived nearly 30%. Even the mid-cap and\nsmall-cap have noticeably fallen since their peaks in January 2018. As a result,\nthe mutual fund NAVs too have taken a hit and portfolios are bleeding amid the\nCOVID-19 pandemic. <\/p>\n\n\n\n

Table:\nCOVID-19 infecting equity mutual funds\u2026<\/em><\/strong><\/p>\n\n\n\n

\n
\n\n\t\n\t\t\n
\n Category<\/strong>\n <\/td>\n 30\/Jan\/20 To 03\/Apr\/20 (%)<\/strong>\n <\/td>\n 1 Year (%)<\/strong>\n <\/td>\n 3 Years (%)<\/strong>\n <\/td>\n 5 Years (%)<\/strong>\n <\/td><\/tr>
\n Aggressive Hybrid Fund \n <\/td>\n -23.7\n <\/td>\n -20.0\n <\/td>\n -2.7\n <\/td>\n 1.6\n <\/td><\/tr>
\n Contra Funds\n <\/td>\n -32.1\n <\/td>\n -29.6\n <\/td>\n -4.3\n <\/td>\n 0.5\n <\/td><\/tr>
\n Dividend Yield Funds\n <\/td>\n -28.3\n <\/td>\n -25.8\n <\/td>\n -6.0\n <\/td>\n 0.0\n <\/td><\/tr>
\n Equity Savings Funds\n <\/td>\n -13.1\n <\/td>\n -9.2\n <\/td>\n 0.9\n <\/td>\n 4.1\n <\/td><\/tr>
\n  Focused Fund Funds\n <\/td>\n -30.4\n <\/td>\n -24.4\n <\/td>\n -3.1\n <\/td>\n 1.7\n <\/td><\/tr>
\n Market Cap Fund Funds\n <\/td>\n -31.4\n <\/td>\n -26.4\n <\/td>\n -5.2\n <\/td>\n 0.6\n <\/td><\/tr>
\n Value Funds\n <\/td>\n -33.6\n <\/td>\n -33.1\n <\/td>\n -9.0\n <\/td>\n -1.0\n <\/td><\/tr>
\n NIFTY 50 – TRI<\/strong>\n <\/td>\n -32.6<\/strong>\n <\/td>\n -29.6<\/strong>\n <\/td>\n -3.1<\/strong>\n <\/td>\n 0.1<\/strong>\n <\/td><\/tr>
\n NIFTY 500 – TRI<\/strong>\n <\/td>\n -32.8<\/strong>\n <\/td>\n -30.3<\/strong>\n <\/td>\n -5.0<\/strong>\n <\/td>\n 0.0<\/strong>\n <\/td><\/tr><\/tbody><\/table><\/div>\n<\/center>\n\n\n\n

Data as on April 3, 2020
Return upto 1-year is absolute, while the return for the periods over 1 year is compounded annualized.
(Source: ACE MF, PersonalFN Research) <\/p>\n\n\n\n

How have you been handling this stressful situation and ensuring that your clients don\u2019t get a rough deal in the on-going bear market phase? <\/p>\n\n\n\n

Are you protecting your investors mutual fund portfolios?<\/p>\n\n\n\n

And don\u2019t misread the above questions. Protection does not mean simply\nto avert negative returns; it actually means not letting investors\u2019 portfolio\nlose disproportionately. Protecting portfolios means ensuring the damage is\nmeasured and well-contained.<\/p>\n\n\n\n

Losses are inevitable when markets fall so sharply and enter a\nserious bear phase. But that does not mean you should sit back and relax until bulls\nmake a comeback. On the contrary,  financial\nadvisors should ensure that the investors\u2019 mutual fund portfolios remain well\naligned with their financial objectives. <\/p>\n\n\n\n

Discourage clients from discontinuing their SIPs<\/strong><\/p>\n\n\n\n

Financial advisors must counsel\ninvestors more seriously and take extra effort to explain to them why they\nwould do better if they continue with their SIPs. <\/p>\n\n\n\n

Disappointing returns even on 3-year and\n5-year time frame might have had investors worried about the future performance\nof their SIPs. But historical evidence suggests that over the long-term, SIPs\nin equity mutual funds have generated a respectable compounded annualized\nreturn. In other words, the impact of sudden market falls gradually reduces\nprovided investors continue with SIPs. This is because of the inherent\nrupee-cost averaging feature of SIPs. <\/p>\n\n\n\n

As a financial advisor, explain the benefits of doing SIPs one more\ntime; even though you might have explained this information to them at the time\nof recommending SIPs. Sometimes reiteration of advice is important to mollify\nand educate investors. <\/p>\n\n\n\n

If investors hold unrealistic return expectations, especially during\nsteep downturns like the one prevailing at present, counsel them appropriately.\nThis might take away unnecessary pressure that you might otherwise feel. <\/p>\n\n\n\n

That said, don\u2019t forget to revisit investors\u2019 portfolio just to\nensure everything is under control. <\/p>\n\n\n\n

You should review the portfolios\nof your clients now as it helps to:<\/strong><\/p>\n\n\n\n