How to Position Portfolio Amid Global Tensions, Rising Gold,Silver ETF Inflows? Navi CEO Aditya Mulki Explains

Amid rising gold and silver exchange-traded fund (ETF) inflows, growing geopolitical tensions, and global trade uncertainty, the key to investing remains sticking to a disciplined asset allocation. Whether it is the intensifying US-Iran conflict adding to the Middle East crisis or the US tariff tussle, geopolitical uncertainties continue to disrupt the global order. Amid these developments, investors should not lose focus on maintaining the right asset allocation and ensuring periodic portfolio reviews.

In an interaction with Goodreturns, Aditya Mulki, CEO of Navi AMC discussed the importance of periodically reviewing mutual fund portfolios, identifying the right time to switch schemes, navigating market uncertainty driven by global developments, and the role of gold and silver in long-term investment strategies.

Is Gold, Silver ETF Inflow Posing Structural Concern For The Indian Stock Market?

Gold and silver ETF inflows surged to record levels in January, with investments more than doubling month-on-month to Rs 240.4 billion. While inflows into gold ETFs saw some moderation in February, overall investors' interest toward the category remains strong.

In January month, the net inflows into Indian equity mutual funds declined nearly 14.35%, raising concerns about a potential structural shift away from equities. However, Aditya Mulki believes the trend reflects healthy portfolio diversification rather than a long-term concern for the equity markets.

"We do not think it poses a structural concern for markets as having some precious metals in the portfolio is recommended, and as long as the exposure does not take the asset allocation completely off track, investors should keep their allocations. Investors should avoid performance chasing attitudes and invest in them simply because they are amongst last years best performers," said Mulki.

Managing Portfolio Amid Rising Geopolitical Uncertainty

Sensex tumbled nearly 3.5%, whereas Nifty fell around 1.5% in the past five trading sessions as the US-Israel air strikes on Iran escalated tensions in the Middle East. Geopolitical developments such as these often weigh on global markets and investor sentiment. Staying disciplined with asset allocation, rather than chasing returns or excessively prioritising capital protection, remains crucial for investors.

Emphasising that market uncertainty is a constant part of investing, Mulki added, "Investors cannot control global events, but they can control how much of their money is allocated to stocks, fixed income instruments, precious metals and real estate."

"While it is tempting to chase high returns or hide in cash, retail investors should prioritise asset allocation above all else. Investors should focus on their plan and get their asset allocation right."

How Often Should Investors Check Their Mutual Fund Portfolio?

"Once or twice every year should suffice. Checking more often leads to stress and bad choices based on short-term sentiments. One thing investors must look at is the portfolio overlap between the various schemes they hold. If the schemes an investor holds have a high overlap consistently, then they must consider investing in a scheme with a different style," explained Mulki.

Watch For Style Drift, Active Share Before Switching Mutual Fund Schemes

While mutual fund investment is a long-term game, metrics like style drift and high active shares help in assessing how a mutual fund scheme is being managed.

"An investor needs to monitor a fund for style drift. Another metric to track is the active share, which is how different the fund's portfolio is as compared to its benchmark," said Aditya Mulki.

Style drift in a mutual fund occurs when the fund moves away from its stated investment strategy. For example, if a large-cap mutual fund starts investing in small-cap or mid-cap stocks.

"A high active share indicates that the fund manager is taking active bets and not closet indexing in the fund. It does not guarantee outperformance, but it suggests the fund manager is taking bets with conviction," he added.

Active share measures how much a mutual fund's portfolio differs from its benchmark index (a market index used to track its performance). It can range from 0% to 100% and indicates how a mutual fund portfolio is different from its index to potentially outperform it.