Sensex crashes 1,939 points! How to shield against sudden market fury

The richly-valued stock market finally had it. The Sensex crashed 1,939 points on Monday amid a global sell-off even as domestic parameters paint a good picture. You cannot predict market moves. What you can control, however, is protecting your portfolio from sudden market crashes. How do you do it? The answer lies in asset allocation. If you invest across asset classes from equity to debt to gold, and keep rebalancing it as per your life goals, you can protect yourself against sudden surprises that Mr. Market throws at you.

"Every investor should regularly review their portfolio once in six months. There are simple ways to track the progress of your investment. You can manage it through online portfolio trackers or maintain as simple as an excel file. The key is to have updated information on overall portfolio with asset allocation," says Harshad Chetanwala, co-founder of MyWealthGrowth.com.

For example, if today's market crash has decreased your allocation to equities, consider buying more instead of redeeming from equities. Similarly, when the market keeps hitting fresh highs, you should re-balance your portfolio by investing in other asset classes. If all this seems tedious to you, there are ready-made products and mutual funds to help you with asset allocation:

Also read: Sensex crash: Freaky Friday on D-Street; what should investors do?

1) All Weather Investing

All Weather Investing, a product innovated by fintech firm Smallcase, runs on the concept of asset allocation. It allocates your money across three asset classes -- equities, gold and fixed income -- via investing in the most liquid ETFs in each category. If a sudden crash happens, it minimises the damage to your portfolio. For example, All Weather Investing smallcase fell 1 per cent today as compared to 3.8 per cent dip in Sensex.

"All Weather Investing smallcase continues to be the most popular smallcase since its launch in 2018. Investors use it to build the core allocation to their portfolio as it is an asset allocation strategy across equities, gold and fixed income, and offers lower volatility," says Vasanth Kamath, founder & CEO, Smallcase.

2) Dynamic/multi-asset allocation funds

There are mutual funds in dynamic and multi-asset allocation categories that dynamically shift allocation to equity, fixed income, gold or even international equities as per market conditions.

"While most are aware of the importance of asset allocation in navigating volatile times efficiently, not many have the ability to maintain the discipline or even plan in accordance. For such cases, the closest proxy would be to invest in a good dynamic or multi-asset allocation fund. Funds in these categories try to optimise allocation basis market cycles and attempt at minimising the impact of extreme volatility on portfolio performance," says Fisdom co-founder Anand Dalmia.

Motilal Oswal recently launched two new fund offers -- Motilal Oswal Asset Allocation Passive Fund of Fund - Aggressive and Motilal Oswal Asset Allocation Passive Fund of Fund - Conservative, which will provide allocations across equity, international equity, fixed income and commodity. Other fund houses also have similar products.

The downside

While tactical asset allocation via ready-made basket of stocks or mutual funds makes sense, it takes a one-size-fits-all approach. Having a personalised portfolio as per your life goal and risk appetite should always be the first choice.

"The All Weather smallcase as well as multi-asset allocation funds focus on the key principle of effective asset allocation. For those who are unable to develop and maintain a portfolio actively in line with appropriate target allocation, these solutions may be the next best bet. The challenge with these products is that it is a blanket strategy which may not always be in line with an investor's unique investing profile and financial goal, but nevertheless is a solution better than completely ignoring asset allocation," says Dalmia.

Take SIP route

Often investors look for investment avenues to invest lumpsum amount. However, a staggered approach is a better way out. "Consider allocation of your funds based on your long-term investment objectives with a disciplined approach. SIP (Systematic Investment Plan) is a good example of how a disciplined approach can help an investor meet their investment objective. According to a 2019 CRISIL-AMFI report, using SIP an investor's risk of getting negative returns declines over a longer investing period and can help manage downside risks," says Nikhil Kamath, co-founder and CIO, True Beacon and Zerodha.  

In the given scenario, if you have investible surplus and want to invest for long term, Chetanwala has an advice: Invest 30 per cent of the lumpsum in equities and keep the remaining amount in bank or liquid funds right now. The remaining amount can be invested in three-six instalments based on market conditions.

Also read: Decoding the Sensex, Nifty crash: How US bond yields roiled global markets