It’s advisable to adopt the SIP route to invest in largecap mutual funds as SIPs help in averaging out the risk over a period of time.
The last few months have been challenging for the markets. The economic slump, the liquidity crisis in the NBFC sector, subdued export growth and output contraction in eight core sectors, have taken a considerable toll on the performance of markets.
Though the government and regulatory bodies like the RBI have tried to boost investors’ sentiments by reducing the corporate tax and bringing down the repo rates, current volatility will take time to ease. No wonder, the present situation has taken a toll on investors’ wealth with most investments turning red.
Riding the present situation needs deft financial planning and patience. Read on to know to the strategies, which can help you ride sail smooth amidst rough waters.
It’s not uncommon for investors to change their investment strategies overnight at the slightest hint of the markets turning turtle. The immediate reaction is to exit investments, particularly in equities. This can be detrimental for long-term wealth creation.
Indian financial markets are well-regulated and resilient enough to withstand any crisis. Note that during the financial meltdown of 2007-08, though India’s GDP growth slumped from 9 percent in 2007-08 to 7.8 percent in April-September 2008, and in the next three quarters, it fell further to 6.1 percent, it was still much higher than the forecast of the World Bank at 4 percent in 2009.
Hence, instead of pulling out of your investments, it’s prudent to stay invested. If you have made sound investments, there’s every chance of making gains in the long-term. The current volatility is a good time to invest in equity mutual funds through Systematic Investment Plans (SIPs) as you can buy more units at a lesser price.
Block out the noise
Noise surrounding the markets give an adrenaline rush when the going is tough. It’s during this time when even novices become experts and analysts. Every minute happening is covered and investors are made aware of the same.
While awareness is good, it’s crucial to separate news from the noise. In other words, it’s vital to block out the noise that can impact your investment behaviour and lead to rash decision making. In case you feel confused or find yourself in a dilemma, seek help from certified financial advisors for guidance.
Professional guidance can do a world of good and prevent you from making irrational choices that can strain your finances and put you under unnecessary stress.
Avoid reviewing your portfolio often
Reviewing portfolio asset allocation is a common tendency among investors during pressing times. It’s difficult to curb the tendency of not analysing one’s portfolio often to see where it’s heading.
It’s a common knowledge that your gains will be cut when the markets are under pressure. A constant review may lead to adopting wrong investment strategies, which can pull down your overall gain in the long-term.
What’s advisable is to review it at periodic intervals of 6-12 months and take measures, if needed. Also, it’s prudent not to tinker with your portfolio and asset allocation based on short-term results.
Invest in large-cap funds
To weather the storm, you need a strong pillar of support. This is where large-cap funds can come to your aid. Since they belong to firms with robust fundamentals, they enjoy the trust of investors and more importantly are better structured to contain the downside.
It’s advisable to adopt the SIP route to invest in largecap mutual funds as SIPs help in averaging out the risk over a period of time. Returns from large-caps are stable and having them in your portfolio can help the corpus from taking a major dip.
To sum up
Discipline, focus and patience are vital components that can help you in this bumpy ride. Also, it’s important to diversify to absorb the shocks better. Diversification, one of the core tenets of investing, helps to minimise losses and ensure you are on track of achieving your goals.
(The author is Head - Personal Wealth Advisory at Edelweiss.)Disclaimer: The views and investment tips expressed by investment expert 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.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.