Decoded: Adjusting Your Mutual Fund’s Investment for a Growing Stock Market

The Indian stock market has been on an upward trend over the last seven sessions. The frontline indices—Nifty 50, BSE Sensex, and Bank Nifty—have seen a rise of 2.90% in the past seven sessions. With the buzz of a US Fed rate cut ahead of Jerome Powell’s speech at the Jackson Hole meeting, investors looking to put their money into equity mutual funds may face challenges in finding the right investment option in this soaring market.

Experts suggest that medium- to long-term investors need not worry about a rising stock market. However, those with a shorter horizon of up to one year may want to consider tweaking their mutual fund investments. These adjustments could potentially earn them an extra one to one and a half per cent return on their investment. Liquid, ultra-short-duration, and short-duration funds are recommended over other short-term investment tools to maximize returns. Investors with a one-year horizon and in a higher income tax bracket can consider parking their cash in Arbitrage Funds.

Mutual funds investment in the rising stock market

Speaking about the tweaks that mutual fund investors can make during a rising stock market, Pankaj Mathpal, MD & CEO at Optima Money Managers, advises, “Short-term investors with up to a 12-month horizon may look at liquid funds, ultra short-duration funds, and short-duration funds to maximize returns.”

“Those with 3-month perspective may opt for Liquid Funds, 3-6 month investors may consider Ultra Short Duration Funds, while 6-12 month investors can choose Short Duration Funds,” recommended Mathpal.

For investors in higher income tax brackets, Arbitrage Funds are suggested by Mathpal with a 9-12 month perspective.

SEBI registered tax and investment expert Jitendra Solanki highlights that choosing Liquid Funds, Ultra Short Duration Funds, and Short Duration Funds during a rising stock market could result in an additional one to one and a half per cent return on investment.

Mutual funds to invest

Solanki emphasizes that Arbitrage Funds are tax-efficient and offer investment options in line with the aforementioned funds. These funds are suitable for investors in the over 20% income tax bracket.

“Arbitrage Funds may yield higher returns during a volatile market. However, in a market moving in one direction, Liquid Funds, Ultra-Short Duration Funds, or Short Duration Funds may perform better,” explained Solanki.

Mutual Funds investment plans

For investors looking to invest during a bullish stock market, Mathpal lists 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 Asset Arbitrage Fund.