Have a long-term outlook | Timing investment is logically impossible because the best entry and exit opportunities are known only in hindsight. No one can predict market movements with certainty. Therefore, it is important to allow your investments to compound over a long term.
I can't invest because the market is trading at high valuation? There is too much risk in the market right now? I don't know how much and where to invest? Do these questions look familiar to you?
If yes, then we might be able to help you out. If you want your money to work for you – first thing is to get it out of your bank account and invest in various asset classes.
The best returns are achieved through patience and by putting your eggs in few baskets that you know well and watch them growing over a period of time.
Unlike the year 2016, 2017 turned out to be a rewarding year for investors so far, as market touched its peak earlier in the month of April thanks to abundance liquidity, positive global and domestic cues.
The Nifty registered a record high of 9,273.90 while the S&P BSE Sensex touched a fresh 52-week high of 30,007.48 earlier this month.
The equity markets are near record highs only in nominal index terms. With Sensex and Nifty PE at about 23x they are expensive, but below the valuations of the previous 2008 high of about 29x PE, 2001 peak PE of about 30x and much below the 1992 and 1994 PEs of over 50x, suggest experts.
The debt markets are also much higher than lows of 2 – 3 years ago with the 10-year G-Sec yield about 2.5-3 percent lower than its high. It is still far from the highest price, or lowest yield.
“Movement of markets about 20 percent higher than these levels would take them to near bubble levels, unless fundamentals improve. Bubbles can grow to ridiculously big sizes, as history has repeatedly demonstrated,” Anil Rego, CEO & Founder of Right Horizons Investment Advisory Services told Moneycontrol.com.
“The fundamentals to watch would be corporate earnings for equities and lower borrowing by the government. A very sharp improvement in either is not likely with Q4 corporate earnings likely to reflect demonetisation impact,” he said.
Assuming you are in the age bracket of 30-35 years with Rs 10 lakh to spare can consider these 5 portfolio options.
Portfolio 1 - Risk-taking investors
Diversification is key when you want to build your portfolio and staggered approach should be adopted, Abhimanyu Sofat, VP, Research, IIFL told Moneycontrol.com. He said investors can look at investing 70 percent in equities, 20 percent in debt and the rest in gold.
Portfolio 2 – Safe approach
A reasonably safe allocation at this time, attempting to enjoy any upside of both equity and debt markets would be to invest 25 percent each of the corpus in equity growth schemes of mutual funds and dynamic bond funds, said Rego of Right Horizons Investment Advisory Services.
“The other 50 percent would be in Liquid Plus Funds with STP over 2 years into midcap equity funds. The allocation considers the youth of the investor, some ability to take risks while striving to better normal returns for long-term objectives such as buying a home, or building a retirement corpus,” he said.
Portfolio 3 – Invest with retirement in mind
Since the risk taking abilities are higher, Rego said, one can invest upto 60 percent of investments in equities (via Equity funds and stocks route).
An ideal allocation would be 60-65 percent equity, 25-30 percent in equity and rest 10-15 percent in gold. This allocation would help in a balanced manner for investing in building a sizable retirement corpus.
Portfolio 4 – Stock approach
One should focus your time and money in finding some of the biggest winners in the markets. These stocks should come from top industry groups, have fastest earnings and sales growth rates, produce cutting-edge products or services, and enjoy good profit margins and strong management.
“In the current scenario, focus 80 percent of your portfolio in equities and balance in liquid funds to meet emergency requirements,” Vijay Singhania, Founder-Director, Trade Smart Online told Moneycontrol.com.
“People with Rs 10 lakh (or Rs one million) idle should buy only four or five stocks. It's always better to invest in the market by taking the staggered approach. One should invest on days when markets are weak,” he said.
The portfolio should be allocated as per the market cap of these stocks selected. The idea is that investors should be able to limit losses and maximise gains by keeping tabs on just a few stocks.
In a market correction, it's important to follow strict sell rules and sell any stock that falls 8 per cent below its buy point, since you don't know when -- or if -- the stock will recover.
Portfolio 5: Investing via STPs:
From the short-term perspective, the time of easy money making is over. Next one year is likely to give only modest returns, certainly not spectacular returns. Also, there is the possibility of no returns, if the investors’ time horizon is 1 year.
“Bulk investment is not desirable at this juncture. The ideal investment strategy for someone who has Rs 10 lakh, presently, is investing through Systematic Transfer Plans (STPs),” V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services told Moneycontrol.com.
“Invest in a liquid fund and systematically transfer, say, Rs 10,000 each every month to three funds - one balanced fund, one large cap fund, and one flexi cap fund. This will give the investor the benefits of SIP as well as interest income from the liquid fund,” he said.
The advantage of this STP strategy is that if the markets correct and valuations become attractive, STPs can be stopped and bulk investments can be made either in attractively priced stocks or in equity funds.