Don’t get carried away and invest the entire lumpsum in the market. Follow a mix of strategies
Should I sell State Bank of India (SBI) shares?” an excited Jaya Aggarwal asked her broker. “Wait for some more time. The banking sector has been doing rather well,” was the broker’s reply.
On Monday morning, when the Bombay Stock Exchange Sensitive Index, or Sensex, crossed 19,000, Aggarwal’s first thought was to sell some of her holdings. She had bought 30 SBI shares at Rs 2,200 a share.
At Rs 3,175, the selling option seemed lucrative, as she would have made a profit of almost Rs 30,000 in just four-and-a-half months. Even after the capital gains tax of 15 per cent, her profits would have been substantial. No wonder she was a little sad when her broker asked her to wait.
A rising market brings an adrenaline rush. Some want to enter, others book profits, and yet others want to do both.
Financial experts, however, caution. “While the markets are worth betting on right now, don’t try to time them,” says Raamdeo Agarwal, managing director, Motilal Oswal Securities. He feels there are several factors in favour of the stock market — both local and global data are robust and monsoons have been good.
For first-time investors who want to be part of the action, a rising Sensex seems like a great opportunity. But often, in their enthusiasm to be part of the action, they invest big sums at one go.
In a rising market, this is fraught with risks. Investors who put big amounts in the market at 19,000-20,000 in 2007 are just beginning to recover their investments. In such a scenario, it can be a better idea to invest in tranches. Says a stock broker, “I am advising my clients to put 10-15 per cent at one time, and in select stocks only.”
If you favour mutual funds, start a systematic investment plan (SIP) in a good equity-diversified fund. In fact, if you are in real haste, look at daily SIPs.
Another strategy could be putting a lumpsum in a liquid-plus scheme and opting for a systematic transfer plan (STP). This way, your lumpsum will be invested in equities over a longer period of time.
You could also invest 30-40 per cent of the lumpsum in the market now. And, invest the rest through an STP over one-two years. Reason: If the market continues to rise in the next three-six months, the lumpsum will rise in value faster than the money invested through the STP, as you will be buying fewer units of mutual funds because of the rise in the net asset value.
“At the same time, if the market falls, the longer-term STPs will provide the flexibility of switching 60-70 per cent of the money still lying in liquid-plus schemes into equities at lower levels,” says Hemant Rustagi, CEO, WiseInvest Advisor.
An existing investor, in these times, gets a good opportunity to rejig the portfolio. For someone heavily into debt, say 80 per cent, moving some money to equities makes sense.
If you are high on equities and have stayed invested for over a year, it could be a good time to book some profits. Since there is zero capital gains tax on equities held for over a year, you can sell some stocks or mutual fund schemes that have not performed very well.
“You need to decide your time-frame and plan your next move. If one has a 12-month view, the Sensex could be trading above 22,000-23,000 by June-next. If you have a shorter view, it is best to book profits since the market could start correcting by October,” says Dilip Bhat, joint MD, Prabhudas Lilladher.
For a long-term investor (over five-year horizon), Sensex landmarks should not matter much. Remember that the decision to invest or book profits should depend entirely on your risk profile and age.
