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Newspapers, television channels and corporate houses have dissected the performance of the Modi government after 100 days and given the government a thumbs-up. The stock markets too have shown their approval by touching new highs. Not only has the government brought renewed confidence to Indian investors, it has also attracted investors from all across the world. For instance, in the past two months there have been net inflows of Rs 20,000 crore in equity mutual funds alone.
While some investors are preparing for the anticipated bull run, others are trying to time the market to strengthen their positions by value buying. Looking at the uncertainty spread across the market, an investor can expect a lot of drama in the coming months that can make her doubt her decisions. What she needs to remember is that the components of her portfolio should not be influenced by sudden changes in the market, unless she is earning money through day trades.
There is a lot of difference between seeing a possibility and trying to make it work. Expecting the government to change things, the market pundits have predicted strong performance. However, there are going to be a lot of hits and misses before the market finds its bullish rhythm. This fluctuation in the market can cause investors to make hasty decisions, such as, buying funds that lack consistency, on hearsay. It may also cause investors to sell funds due to poor performance that may have been temporary in nature.
Mark Mobius, an emerging markets fund manager with Franklin Templeton Investments believes that India is already in a bull market scenario, which is expected to gain momentum in the coming months. He points out that there may be some problems with the Indian economy that might hinder the performance of some funds but overall the market will be bullish in the coming times. Gary Greenberg, another fund manager in a UK-based firm called Hermes, thinks that people have overestimated the impact that the new government will have on the market and once they realise this and reset their expectations, investors will have a good run over the medium term. In their opinion, investors should not get carried away with the imminent corrections that are likely to happen or bother about people's assumptions on how long the bull-run is likely to last.
So what should an investor do in the upcoming months?
Understand your risk tolerance
An investor should understand her risk tolerance. Whether she chooses large-cap, mid-cap, thematic or sectoral fund, she has to ensure she holds her nerves when the market goes down unexpectedly. It is always recommended to set up a portfolio based on one's risk tolerance.
If you are one of those investors who like to play it safe, large-cap funds are ideal for you. If you don't mind taking some risks then you are better off investing in mid-cap funds. If you have higher tolerance for risk you can invest in small cap funds, sectoral and thematic funds. Whatever is your choice, make sure you have a risk tolerance parameter and that you understand it well before buying any funds
Study your funds
Let us understand another important thing - funds' investment mandate and past performance. Do the due diligence before you buy your funds. Going through a fund's investment mandate and investment style is one thing, but you should also pay close attention to how consistent the returns have been for the fund in question.There are a lot of funds that might have topped the charts right now like mid-cap and infrastructure. But that does not mean that they will be able to sustain identical performance for long. Funds like these can plummet as quickly as they rose. Fear of downturns and the excitement of a bull-run often gets investors to choose low quality funds over the good ones. Make sure you don't fall for such a trap.
Analyse the funds you want to buy thoroughly and base your decision on the homework. Consulting an expert would certainly help.
Form the right mix
Any investor who is looking to create wealth from the current financial scenario should focus solely on having the right things on their portfolio. If this requires them to buy new funds and sell old ones, then it is time they did that. However, it is necessary to be really careful about what you want to include in your portfolio.
If your portfolio already has some funds that are not performing as expected and are giving you sleepless nights it's time to sell them. These could be funds that you purchased in haste or whose investment mandate you were unable to fully understand.
For example, there could be some funds that performed really well a few years, back but have not been giving you consistent returns since then. Continuing with such funds in your portfolio will only eat away on precious time and money. Only when you free yourself from these funds can you make room for new ones. After all, investing is all about creating wealth and not about dealing with unnecessary activity of on-going churn.
Be aware and patient
Lastly, remember to "buy right and sit tight". The funds that give the best returns are often the ones that you have to keep a lot of patience with. As long as you set your portfolio right and don't heed to the drama in the market, you will do just great. Being aware of latest performance and fund house news will also help and potentially give you an opportunity to course-correct.
You are unique and so is your portfolio Remember you are different from the other person, exactly the way your body is different from any other individual's. Basing your decisions to buy or sell on another person's actions would hurt your more than benefit. Engage your personal advisor and let him lead any changes that are required. Stay focused on your goals and their respective horizons. Stay grounded. You cannot make money from every single opportunity but you certainly can minimise harm to your portfolio by staying alert, aware, engaged and patient.
The author is founder, WealthBeing Advisors
WHILE CHOOSING MUTUAL FUNDS
- Study the investment mandate and past performance
- Current toppers may not offer the same returns always
- Sell ones that gave good returns earlier but are now languishing at the bottom
- Stick to your goals and their time horizon
