Explained! How to tweak your mutual fund’s investment in rising stock market?

The Indian stock market has been trading upside over the last seven sessions. The frontline indices—Nifty 50, BSE Sensex, and Bank Nifty—have risen to 2.90 per cent in the previous seven sessions. Amid the US Fed rate cut buzz ahead of Jerome Powell’s speech at the Jackson Hole meeting, those planning to invest in equity mutual funds might face challenges in finding an ideal mutual fund option for their money in this rising stock market.

According to experts, medium- to long-term investors need not bother about the rising stock market, but those with a horizon for up to one year may think of some tweaks in their mutual fund investment. They said such tweaks might help them garner an extra one-to-one and half per cent return on their mutual fund’s investment. Asked about the mutual fund investment tweaks, they said that liquid, ultra-short-duration and short-duration funds could be chosen over other short-term investment tools to generate maximum return on one’s money. They said those with a one-year time horizon and fall in a higher income tax bracket can park their cash in Arbitrage Funds.

Mutual funds investment in the rising stock market

Speaking about the mutual fund’s investment tweaks that a mutual fund investor can apply while investing during a rising stock market, Pankaj Mathpal, MD & CEO at Optima Money Managers, said, “A medium to long-term mutual fund investor need not change the investment strategy in the rising stock market. However, short-term investors with up to a 12-month horizon may look at liquid funds, ultra short-duration funds, and short-duration funds to maximise the returns on their money.”

“Those who have up to a 3-month time horizon may look at the Liquid Funds, those with 3-6 month perspective may look at Ultra Short Duration Funds while investors with 6-12 month perspective can choose Short Duration Funds,” said Pankaj Mathpal.

For those who fall in the higher income tax bracket, Pankaj Mathpal suggested looking at Arbitrage Funds. However, such investors need a 9-12 month perspective.

On the extra return that one can expect using these tweaks in their mutual funds investment during the rising stock market, SEBI registered tax and investment expert Jitendra Solanki said, “By choosing Liquid Funds, Ultra Short Duration Funds, and Short Duration Funds during a rising stock market, one can expect an additional one to one and a half per cent return on their money.”

Mutual funds to invest

However, Jitendra Solanki said that arbitrage funds are conducive from a tax compliance perspective. They would also yield in sync with the above-mentioned mutual fund investment options. So, normal investors in the lower income tax bracket need not invest in Arbitrage Funds. They are suitable for those who fall in the above 20 percent income tax slab.

“Return on an Arbitrage Fund can be higher during a volatile market. If the market moves in one direction (buy on dips or sell on the rise), then an Arbitrage Fund may yield lower than Liquid Funds, Ultra-Short Duration Funds, or Short Duration Funds,” said Solanki.

Mutual Funds investment plans

Asked about the mutual fund’s investment plans that one can look at during a bullish stock market, Pankaj Mathpal of Optima Money Managers listed out the following mutual fund plans:

Liquid Funds: Kotak Liquid Fund.

Ultra Short Duration Fund: ICICI Prudential Ultra Short Term Fund.

Short Duration Fund: Aditya Birla Sun Life Short Term Fund.

Arbitrage Fund: Mirae Aaset Arbitrage Fund.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.