DSP Mutual Fund executive Aparna Karnik advises investors to move away from attempting to time the market by chasing top-performing assets. Instead, she recommends a disciplined, multi-asset strategy to build portfolios that can withstand unpredictable economic cycles and reduce concentration risk.
For many Indian investors, the urge to identify the next high-performing stock or sector often leads to a cycle of constant portfolio shifting. Aparna Karnik, Executive Director and Head of Quantitative Investments and Analytics at DSP Mutual Fund, argues that this approach—often called chasing winners—is a dangerous habit that creates unnecessary risk rather than long-term wealth.
Instead of trying to predict the future of specific economic cycles, Karnik emphasizes the importance of building a portfolio that can remain steady regardless of external shocks like inflation, interest rate changes, or geopolitical tension. Her strategy focuses on constructing portfolios that are inherently built to endure, rather than those that depend on perfectly timed entries and exits.
The Core-Plus-Tactical Approach
To manage market ups and downs, DSP Mutual Fund utilizes a framework described as core-plus-tactical allocation. In this model, the portfolio is anchored by a core allocation, typically comprising 50% to 70% in equities, which serves as the primary engine for long-term growth. The remaining portion is spread across assets that behave differently, such as 10% to 20% in gold and commodities to act as a hedge against inflation, alongside fixed income and cash equivalents for stability.
This framework is not a set-it-and-forget-it strategy. It requires discipline through valuation analysis. When markets show signs of extreme optimism and potential returns become compressed, the strategy involves active reduction of exposure to lock in gains. Conversely, when markets offer a higher margin of safety, the model may justify taking on more risk. This process-driven approach helps avoid the common mistake of buying high and selling low during market swings.
Redefining True Diversification
Many investors believe they are diversified simply by holding multiple equity funds or investing in different sectors. Karnik warns that this is a common misunderstanding. During severe market corrections, the correlations between equity funds often tighten, meaning that even if the holdings are different, they often move downward together.
Effective risk management requires diversification at the asset-class level. By combining investments that respond differently to the same economic factors—such as equities for growth, fixed income for yield, and commodities for stability—an investor creates a buffer against uncertainty. This layering ensures the portfolio can absorb volatility without requiring constant, speculative intervention.
What Investors Should Monitor
When evaluating multi-asset products or choosing how to structure a portfolio, Karnik suggests looking past the headline returns. A product that appears to outperform consistently during a bull market might be masking excessive risk-taking.
Instead, investors should examine the underlying investment process and the logic used for tactical rebalancing. A robust strategy should focus on managing drawdowns and preserving capital throughout the entire market cycle, rather than seeking short-term gains. Understanding that all market investments carry inherent risk is essential, as no allocation strategy can completely eliminate the possibility of loss, especially during systemic market events where all asset classes may face pressure simultaneously.