Are mutual funds really the best place to invest your money right now?

Stock markets are volatile by nature, but the past week has tested investor patience more than usual. Headlines around the India–US trade deal, India–EU FTA, Budget 2026, sharp corrections in gold and silver, and a sudden sell-off in IT stocks have all landed within days of each other.

When so much happens at once, one of the most common mistakes investors make is reacting to every market move. In such phases, one of the most common mistakes investors make is reacting to every market movement, often changing portfolios based on short-term fear rather than long-term logic.

Markets, however, have always moved in cycles. Periods of strong gains are followed by corrections, and calm phases are interrupted by sudden shocks. The real risk for investors is not volatility itself, but allowing short-term noise to derail long-term plans.

WHY MARKET VOLATILITY FEELS MORE UNSETTLING RIGHT NOW?

The start for Dalal Street in 2026 has not been good and in calendar year 2025, Indian equity markets delivered positive but modest returns. The Sensex and Nifty 50 gained around 8–10%, ending the year higher in absolute terms.

However, when compared globally and adjusted for dollar returns, India underperformed many major markets.

Countries such as Japan, several European nations, South Korea and Mexico posted much stronger gains, in some cases exceeding 20%.

This divergence has made Indian investors more sensitive to corrections, even though the underlying businesses have not changed dramatically.

HOW SHOULD INVESTORS READ RECENT EVENTS?

Ankit Yadav, Sebi registered research analyst, said recent events need to be viewed with perspective.

“The India-US trade deal has created cautious optimism, though the real impact will only be clear once the final printed version is released,” he says.

He notes that sectors such as IT, solar manufacturing, pharmaceuticals, and gems and jewellery could benefit, but cautions that it is too early to draw firm conclusions.

On the weakness in IT stocks, Yadav believes the fear is exaggerated.

“The IT sector weakness appears temporary. Yes, AI will disrupt traditional IT services, but investors must remember that AI itself is a product of the IT sector. Indian IT companies are actively investing in AI capabilities,” he says.

His message to investors is clear. “Don’t make knee-jerk portfolio changes based on headline events. The fundamentals of quality businesses don’t change overnight.”

SHOULD INVESTORS RESET THEIR MUTUAL FUND PORTFOLIOS?

Yadav does not believe a broad reset is required.

“Absolutely not. There is no need to change your mutual fund strategy based on short-term news events like trade deals, budget announcements, AI boom fears, or temporary IT sector pressure,” he says.

He explains that mutual fund strategies should change only when there are long-term shifts in business economics or personal financial goals.

“The India-US trade deal hasn’t fundamentally changed how Indian companies will do business over the next 20 years. Budget 2026 hasn’t destroyed growth prospects. AI hasn’t made technology companies obsolete overnight,” he says.

“Markets always overreact in both directions. Smart investors use this volatility to their advantage rather than getting swept up in it.”

HOW SHOULD INVESTORS BALANCE LARGE, MID AND SMALL CAPS?

This is where Yadav believes investors should pay close attention.

“Based on current market structure, it’s wise to shift some additional allocation toward small-caps and mid-caps,” he says.

He explains that while benchmark indices such as the Nifty and Sensex have held up relatively well, the broader market has seen sharper corrections.

“Mid-cap and small-cap stocks have corrected significantly, creating better entry points,” he says.

For investors with a long-term horizon, this can be an opportunity rather than a risk.

“For investors with a 10-year or longer horizon, this is an opportune time to slightly increase small-cap allocation,” Yadav says, while stressing that balance remains essential.

“The ideal recommendation remains 60% large-cap, 25% mid-cap, and 15% small-cap. This provides stability from large-caps while capturing growth from mid and small-caps.”

He also cautions against chasing short-term winners.

“When selecting funds, don’t chase recent performance. Look at five to seven-year track records, fund manager consistency and expense ratios,” he says, adding that investors should prefer reputed fund houses with strong processes.

WHICH MUTUAL FUND CATEGORIES LOOK BETTER NOW, AND WHICH SHOULD INVESTORS AVOID?

Yadav is particularly cautious about sector-specific funds.

“Investors should be extremely cautious about sector-specific thematic funds, particularly defence or technology-focused funds,” he says.

“The fundamental problem with sector-specific funds is concentration risk. If that sector faces headwinds, your entire investment suffers. This affects compounding negatively over long periods.”

He points out that history shows hot sectors eventually cool down, often leaving investors with mediocre returns.

“If you must take a sector bet, limit it to a maximum of 10% of your total portfolio,” he says.

Instead, he prefers diversified fund categories.

“Focus on diversified equity funds such as flexi-cap, multi-cap and balanced advantage funds,” Yadav says. “These provide professional management with built-in diversification across sectors and market caps.”

He also includes index funds among suitable options for investors seeking long-term stability without concentration risk.

SHOULD INVESTORS CONSIDER GLOBAL OR NASDAQ FUNDS RIGHT NOW?

On global exposure, Yadav urges caution.

“At this juncture, increasing allocation to US market-focused funds does not look attractive,” he says.

He points out that US equity markets are trading at historically high valuations, while policy uncertainty and tariff tensions add to downside risks.

“The downside risk is wide open given uncertainty around policy decisions and interest rate direction,” he says.

He prefers domestic opportunities in the current phase.

“I strongly advocate investing in India, for India,” Yadav says, highlighting areas such as domestic consumption, infrastructure, manufacturing, railways and capital market development.

For investors who still want global diversification, he suggests moderation.

“Limit international exposure to 10–15% at most. At present, the best risk-reward lies in quality Indian equities,” he says.

HOW SHOULD INVESTORS ADD GOLD AND SILVER TO THEIR PORTFOLIOS NOW?

With sharp volatility in precious metals, Yadav believes exchange traded funds are the most practical route.

“ETFs remain the most efficient way to add gold and silver exposure,” he says.

He is cautious about sovereign gold bonds for most investors due to liquidity constraints and lock-in periods.

“Gold ETFs and silver ETFs offer complete liquidity, are backed by physical metal stored in secure vaults, and avoid making charges or storage hassles,” he explains.

For asset allocation, Yadav offers clear guidance.

“Ideal allocation is 10–15% of the portfolio in gold ETFs, and a maximum of 5% in silver ETFs due to higher volatility,” he says.

He also suggests using SIPs for systematic accumulation and rupee cost averaging, especially for planned expenses such as weddings.

WHAT SHOULD INVESTORS TRACK NEXT?

Looking ahead, Yadav believes global liquidity conditions will play a key role.

“For stock markets to experience sustained strength, it is critical that interest rates ease and liquidity improves,” he says.

He advises investors to track global central bank actions, trade relations, oil prices and domestic factors such as the monsoon.

His closing advice focusses on discipline rather than prediction.

“Maintain diversification across market caps, keep 10–15% in liquid funds for deployment during corrections, avoid sector concentration and continue SIPs regardless of market levels,” he says.

“The next six to twelve months will remain volatile. Position your portfolio for resilience, not speculation. Quality businesses weather all storms.”

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)