Sensex @80K: 3 things investors must do now

Asset allocation is important to control risks and maximise returns

Equity markets have yet again climbed another peak. This time, the S&P BSE Sensex crossed the 80,000-point mark on July 3 -- for the first time. Here are three things investors should do.

Asset allocation

The Sensex has gone by 11 percent so far this year and 22 percent in the last one year. In this context, the question is not whether you should invest more money in equity markets or sell? In fact, you should be doing asset allocation.

What this means is simple: you should check how much equity allocation you had planned and where it stands now. If it is supposed to be 60 percent of your portfolio, as per your risk profile (the amount of risk you can take in your portfolio ), and if it has gone up to, say 65 percent, as the market has risen, you should cut it back -- sell equities and divert money elsewhere.

“Invest in the market as per your risk appetite, have a long-term horizon, significantly moderate your return expectations and follow the dharma of asset allocation,” says Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Co (AMC) Ltd.

Asset allocation also means that you should invest across asset classes. Don’t just stick to equities. If you have been investing in just equities, it’s time to take money off the table and allocate it to fixed-income securities, like debt mutual funds, and also gold.

Experts also advise that your SIPs (systematic investment plans) must continue. Neelesh Surana, Chief Investment Officer, Mirae Asset Investment Managers (India), says: “We would advise investors to follow a well-crafted and balanced allocation towards equities and remain committed, preferably via SIPs.”

Don’t forget to allocate to fixed-income instruments

In the euphoria created by equity markets, do not forget your debt investments.

Interest rates are expected to start coming down by the end of this year. The yield of the 10-year government security, the benchmark index, is still close to 7 percent. Although it has come down a bit from its high of 7.3650 per cent, as on October 15, 2023, bond yields are expected to fall once interest rates start falling. When rates fall, the prices of bond securities go up; their inverse relationship is at play here.

Experts have repeatedly been saying that the time has come to invest in long-term bond funds as well. A Moneycontrol analysis shows that if funds in government securities are held beyond a certain time horizon, your chances of making a loss turn negligible.

The recent inclusion of Indian sovereign bonds in the global JP Morgan index will also help bond prices go up in future, says Marzban Irani, Chief Investment Officer - Fixed Income, LIC Mutual Fund Asset Management Ltd. But that's not the only reason, he says, why investors must invest a portion of their assets in fixed income now.  "Debt investments provide stability to your portfolio. Even when you book profits in equities, you shouldn't keep the money in your bank account, or worse, spend it all away. Use debt for parking," says Irani. "India's macros economic indicators are favourable. Current account deficit is coming down, inflation is hovering below 5 per cent and in the medium-term, global central banks expected to cut rates. The European Central Bank (ECB) has already embarked on rate cut," he points out.

Gold as a hedge, not for wealth creation

It is not just the equity markets that are riding high. Even gold prices are on their highs. Chirag Mehta, Chief Investment Officer, Quantum Mutual Fund, recently wrote in an article on Moneycontrol that gold “provides your savings the much-needed stability and value preservation in these unpredictable times of crises, wars and global fragmentation.”

But Mehta echoes many experts who say that gold is not an instrument to invest for wealth creation. “Don’t make the mistake of seeing gold returns in isolation. Owning gold is not only about the upside potential, but it is also about minimising risk to the downside. We suggest using it for long-term stability reasons, rather than for short-term investment considerations,” says Mehta.

The best way to invest in gold is through a combination of Sovereign Gold Bonds and gold mutual funds.