Mutual fund advisors ask investors to cut down equity exposure

Even as the stock market scales new all-time highs routinely, mutual fund advisors are worried about investor’s over-exposure to equities. Many advisors are asking their clients to rebalance their mutual fund portfolio and cut down on the equity exposure. However, investors aren’t in a mood to take the warnings seriously as they continue to be upbeat about the prospects of the stock market.

“We have stopped most SIPs in mid and smallcap schemes. Even if your goal is five years away, it doesn’t make sense to buy at such high valuations and expect great returns. But investors are resisting cutting equity exposure. This is primarily because they don’t want to miss out on extra returns,” says Deepali Sen, Founder, Srujan Financial Advisors.

Mutual fund experts argue that bringing the equity exposure down is important as equities have grown on a very fast pace and it can be risky for your portfolio in times of a fall. “No one can predict when the market is going to correct. But if you started with a 50-50 exposure to equity and debt, you have to maintain it, so that it doesn’t hurt you in times of a correction,” says Neeraj Chauhan, CEO, The Financial Mall. Chauhan adds, “When the market goes up, it doesn’t change your ability to take risk in case of a fall.”


Some investors, who followed their advisors and booked profits in some equity schemes, are already regretting the decision. “Investors who come back and crib about booking profits in wake of a correction are basically disappointed on losing out on returns. Investors need to understand that the caution that we are giving is based on the market fundamentals like unreasonable valuations,” says Deepali Sen.

Mutual fund advisors believe that chasing returns, especially in a bull market, is not a good practice. “The reason why investors are resisting the change in their portfolio is the greed for extra returns. Investors should focus on their goals and if the portfolio is making enough returns to meet the goals, you don’t need to take extra risk on your money,” advises Deepali Sen.

But should everyone cut equity exposure in their portfolio? Neeraj Chauhan says no. “Rebalancing the portfolio means coming back to the original equity-debt exposure that you planned. The asset-allocation isn’t changing because of the market conditions. The asset-allocation generally gets haywire because of a sharp run in the market and it is imperative to balance it to safeguard your money,” says Neeraj Chauhan.