2010—Diwali day, saw the Sensex breaching the 21,000 level after nearly 34 months. The euphoria was all around. The recent listing of the Coal India IPO had also given the investors a phenomenal return of nearly 40 per cent on the listing day over the issue price. And only a few days later, we have the Sensex going down , breaching the 20,000 levels. Now what had changed in the last few days for the increased volatility.
Perception, investor sentiment, 2G scam, Irish crisis, Currency crisis etc. The list can go on . The question is how does a retail investor manage his investments in this scenario.
Wealth Creation and Investing, is for the long haul. For those who follow the tools of asset allocation and portfolio rebalancing, the volatility to a great extent is taken care of.
For the rest, let’s look at the avenues.
Mutual Fund Investors
n For those investors who have adopted the Mutual Fund route for creating wealth, any investments through the Systematic Investment Plan (SIP), should continue. Let the market be at 21,000 levels or 12,000 levels, it should deter one from investing.
* For investors flush with funds, and wanting to invest in equity, using the Systematic Transfer Plan (STP) is the recommended approa-ch. In this strategy, the initial lumpsum investment is effected in a debt fund and, as per the instructions of the investors, on a weekly or fortnightly basis, a fixed amount is transferred into the equity funds. This method ensures that the investment happens gradually over a period of time and the investor is not caught on the wrong foot. Investment in debt gives a return higher than the bank savings rate and the gradual investment in equity gives the alpha in returns.
* For those who are conservative and risk-averse, investment in debt funds of mutual funds can also be considered.
For a horizon of 12-18 months, investment in gilt funds / dynamic bond funds can be considered today. A healthy mix of debt and equity should be the stated approach , which is what an asset allocation tool helps the investor to do.
Direct Equity Investors
Being stock specific is the mantra. Timing the market is impossible and in the current bull run, the retail investors have not participated much, as the wounds of 2008 are still fresh in their minds. Mark Twain has rightly said, “October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” In trading, it’s the brokers who make the dough and in majority of the cases, the traders lick their wounds. In this volatility, the investors could enter in tranches and buy the quality stocks which had run-up, with the investors waiting on the sidelines. Having 15-20 per cent cash, can also help the investors lap up the stocks on dips.
Do have a long term view (three to five years) and expecting a CAGR return of 20 per cent should not be difficult to achieve.
When one buys a property, majority of us, do not buy today and sell tomorrow. One of the reasons could be that, there
is no ticker, as in Sensex and Nifty, wherein the rates are displayed every second.
Invest with a long term view and use the volatility to your benefit by adopting the approaches shared in this space.
(Brijesh Damodaran
Founder – WealthWays Private Wealth Management and can be contacted at brijesh@wealthways.in [1])
Links:
[1] mailto:brijesh@wealthways.in