Investing wisely amidst the evolving new normal

Nidhi belonged to the COVID batch of MBA students – from the very first day of her course, which consisted of orientation and introduction to her classmates and lecturers; she was surrounded by the phygital world. Throughout her education in the new normal, she found herself adapting to a never seen before world order, one which turned existing paradigms on their heads and brought forth novel ways of accomplishing objectives. In such a scenario, as a student specialising in Finance, Nidhi was extremely curious about the nuances of investing in this new normal.

Decoding the new normal

In the swiftly evolving financial landscape characterised by the new normal, investors are finding themselves navigating a paradigm shift, marked by a blend of physical and digital dimensions – a phenomenon aptly termed phygital investing. This amalgamation of physical and digital elements has garnered significant traction, offering investors the best of both worlds – the efficiency of seamless digital experiences coupled with the personalised touch of physical assistance. The rise of phygital investing is also coinciding with elevated market levels, shorter market cycles, and steeper market movements, all of which reflect the dynamic nature of today’s financial ecosystem. In fact, the year 2023 witnessed both the benchmark indexes, Nifty and Sensex, scaling their all-time peaks to settle around 20% higher, on a yearly basis. To highlight the volatility of the market, 2023 was also a year wherein the markets plunged multiple times, affected by geopolitical conflicts and woes of a global recession.

Since the pandemic, which actively transformed the way the world and the financial markets function, sectoral trends are no longer linear but rotate swiftly, demanding nimble adaptation from investors. This fluidity extends to changing investor demography, with a surge in do-it-yourself platforms and, consequently, an uptick in retail investment accounts and Systematic Investment Plans or SIPs. In this phygital era, the investment landscape witnesses reduced patience levels, where instantaneous results are not just desired but expected. Further, as the new normal unfolds, investors must brace themselves for the implications of controlled inflation and sustained high-interest rates. Given the confusing landscape at play, what must investors focus on, to navigate the tumult?

Assessing the way ahead

Amidst this evolving landscape, investment strategies require a recalibration. Diversification emerges as a key theme, with market experts recommending a balanced portfolio that includes both fixed income and equities. Investors must adjust their return expectations, amid the new normal, while acknowledging the persistence of higher interest rates and factoring in the potential benefits of a diversified portfolio. The consensus leans towards a moderately positive outlook for investors in the medium to long term, recognising the evolving contours of the new normal in the global financial arena. Given the increasingly popular DIY approach towards investment, mutual funds are emerging as the top contenders for asset allocation and the route is being further facilitated by the recent initiative taken by the Securities and Exchange Board of India.

SEBI’s recent initiative, involving the categorisation and rationalisation of mutual fund schemes, is leading to a transformation in mutual funds through renaming, modifying investment mandates, and implementing mergers. The objective is to standardise attributes and create uniformity among asset management companies (AMCs). Accordingly, SEBI has outlined 36 mutual fund categories, preventing AMCs from offering identical schemes under different names, thereby prompting a realignment of schemes and portfolios into newly defined categories. The categorisation involves changes in scheme classifications, scheme names, and the introduction of lock-in periods for solution-oriented schemes. Scheme attributes such as investment mandate, benchmark, and strategy are also modified to comply with regulations. In equity funds, SEBI has refined definitions for large-cap, mid-cap, and small-cap stocks to ensure standardisation and therefore, mutual fund houses are now required to select stocks from a list provided by the AMFI, with periodic rebalancing.

Further, equity funds have been reclassified into 10 sub-categories, debt funds into 16, hybrid funds into six, solution-oriented funds into two, and other funds into two sub-categories, offering investors a clearer understanding of each fund’s risk and objective. The regulation aims to enhance transparency and assist investors in making informed decisions by providing a consistent framework for mutual fund categorisation, thereby ensuring a more optimised investment journey for market participants.

With the investment landscape becoming more standardised and categorised, investors can now easily make like-to-like comparison among the various offerings and prepare to navigate the new normal with confidence and panache.