With GDP outlook being revised to 6.1 percent for the FY20, down from the previous 6.9 percent, the slowdown is expected to continue in the coming months. Slowdown is the time when most investments turn red
Browse through your newspapers or flip through your television channels and it will not be surprising if you come across the term ‘economic slowdown’.
This is because the Indian economy is facing one of its leanest phases since the financial meltdown of 2008, with eight core sectors recording a 0.5 percent decline in output in August 2019 as against expansion of 4.7 percent during a similar period last year.
With the Gross Domestic Product (GDP) outlook being revised to 6.1 percent for the FY 2019-20, down from the previous 6.9 percent, the slowdown is expected to continue in the coming months. The economic slowdown is the time when most investments turn red.
This has a profound impact on investors’ confidence and they scramble for ways to turn the red into green, often making rash decisions that can have long-term repercussions on their financial well-being.
However, just like making gains during a bull run is an art, so is staying afloat during a slowdown. This article lists the ways to do so.
Opt for systematic investment plans (SIPs)
While SIPs have always been viewed as vehicles to ride volatility, they are equally useful during a slowdown. The beauty of SIPs lies in the fact that they spread the risk over time and help you buy more units when the markets are down at the same price.
When net asset values or NAVs are down, SIPs help you buy more units. By continuing your SIPs now and by the time the market recovers, you can build a substantial corpus.
On the other hand, if you stop your SIPs, you will miss the opportunity to accumulate more units at a lesser price. Also, there are chances of catching the market at a peak the next time you restart them.
Invest in large-cap funds
Though several actively managed large-cap funds have failed to beat their benchmark indices of late, they offer the much-needed cushion amidst a slowdown.
This is because large-cap funds invest in stocks of fundamentally sound companies, which enjoy a dominant presence and trust of investors. They are better structured to ride market downturns.
You can opt for aggressive hybrid large-cap funds, which have a sizeable debt component that arrests the slide when the markets turn sour.
Generally, these funds have a 65-35 equity debt ratio, which means 65 percent of the corpus is invested in equities while 35 percent in debt.
Diversify your portfolio
One of the core tenants of investing, diversification helps to contain losses. For instance, apart from investing in large-cap funds, you can also opt for fixed-return instruments such as fixed deposits that offer assured returns.
You can also opt for gold ETFs, which are not only easy to maintain, but are easier to liquidate than physical gold.
Another way to diversify is to opt for foreign equity funds, as these funds provide geographical and currency diversification, as an investment is dollar-denominated.
Given the current state of affairs, the economic slowdown is expected to continue for some more months.
However, the government is working towards bringing the economy back on track and initiatives such as a reduction in corporate tax and repo rate are expected to turn the fortunes in the coming days.
(The author is Head, Personal Wealth Advisory, Edelweiss)Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.