In a setting of volatile environment, it is pertinent for the investors to keep in mind five basic investing guidelines before they put in hard-earned money in multiple asset classes, writes Nimesh Shah
Indian equity markets off late have seen some volatile times owing to various developments on the global as well as local front and it is likely to continue to remain volatile this year too. This is stark contrast to the stead rally that the markets had witnessed over the last two years. Therefore, for many investors who have entered the equity space in the said timeframe, this volatility can be quite unnerving.
Asset Allocation: It is a known fact that one of the key pointers for long-term wealth creation is following asset allocation. It is seen that investors based on their personal basis very often tend to go overboard on a certain asset class. Based on one’s risk appetite and under the guidance of a financial advisor one should determine an asset allocation plan and adhered to it.
Go For Balanced Advantage Category of Schemes: Since the uncertainty in the market is high, it is advisable to opt for schemes which spread investments across multiple asset classes – namely debt and equity. And one of the easiest ways to achieve such an allocation is to invest in balanced advantage category of schemes. In such a scheme, the fund manager based on market valuation allocates funds between the two asset classes. In effect, such funds invest in equities when markets are declining and book profits when markets are rising. And, in case of a market correction, the debt component renders a cushion effect to the portfolio.
large Caps Over Mid & Small Caps: For those investors who are looking for investing into pure equity funds; we would recommend them to consider large-cap funds. This is because even after the correction seen on the Sensex from its 52-week high of 36,444 (Jan 29, 2018) to 33,597 (Apr 5, 2018), mid and small-cap pockets continues to be an expensive one while large-caps are reasonable priced. The other aspect being that as the market moves into the last phase of the bull-run, historically, large-caps tend to perform better.
Include Debt Funds To Your Portfolio: last year, investors had started questioning the returns from their debt portfolios as equity markets continued to deliver sizeable gains even in the short term and many times, these were equivalent to what debt investments were generating over a year’s time. However, it is still an important asset class to have in one’s investment portfolio. For those investors looking to make fresh investments, one can consider ultra short-term fund, short-term fund, credit risk fund or dynamically managed bond fund.
And Finally, Stay Put: Many-a-times, during market volatility, investors tend to stop their monthly SIPs. In haste, investors tend to forget these investments made are for the long-term and short-term volatility should not deter them from their long-term investments. Continue with one’s SIP and stay invested.
(The writer is MD & CEO, ICICI Prudential Asset Management Company ltd)