Use volatile markets to rebalance your portfolio according to your goals, horizon.
The Bombay Stock Exchange’s Sensitive Index or Sensex has seen violent swings, since the beginning of this year. On many days, it slid more than 400 points and then bounced back. For instance, on February 24, the Sensex fell 500 points, two days after it had closed 623 points up.
Market experts predict that the equity markets are likely to remain volatile for the rest of the year. The volatility index of the National Stock Exchange, India VIX, also shows a similar trend. It dipped 20 per cent in the last one month. This has investors, such as 28-year-old Edward D’Souza, worried about their investment portfolios.
| ALREADY INVESTED? | NEW INVESTOR? |
|
|
D’Souza has invested 40 per cent of his total investments of Rs 4 lakh — Rs 1.6 lakh — in the stock market. He is worried that the volatile markets may erode his gains, if he does not act immediately. K Joseph Thomas, head-research and advisory, Aditya Birla Money, says, “When stock markets dip, investors should take this as an opportunity to re-enter at cheaper levels, instead of panicking.”
And, each correction in the market could make for a good opportunity to rebalance your portfolio. Even otherwise, experts recommend rejigging your portfolio at regular intervals — once a year or six months — according to your goals and investment horizon.
Gopal Agrawal, deputy chief investment officer, Mirae Asset Global Investment (India), suggests you book profits on five-seven per cent of your equity holding, which is not linked to any goal. “Investors will need to pick stocks that have zoomed substantially (at least 50 per cent) from the price these were bought at,” he says.
Therefore, D’Souza should book profits on investments worth Rs 8,000-11,000, but he will need to be careful when picking these stocks up, for he is not a savvy investor. Hence, the easy way out could be to book profits to the extent of the growth in D’Souza’s equity portfolio, leaving the capital invested. His investment of Rs 1.6 lakh has become Rs 1.8 lakh, so he can redeem investments worth Rs 20,000 and re-enter the market. He should leave his goal-linked investments untouched, as stable markets will provide much better returns.
“Since, D’Souza is not a well-researched investor, I suggest he gradually moves out of pure stocks to equity mutual funds,” says a financial planner. The profit D’Souza books could be used to invest in equity diversified funds (one year returns = 9.5 per cent). The other safe option would be index funds that mirror the broader indices.
At the same time, since he has been invested for the last three years, he is expected to have made decent profits on his equity holdings. According to mutual tracking agency, Value Research, the Sensex has returned 8.69 per cent and Nifty 8.33 per cent in the same period.
On the debt side, experts advise D’Souza to hold on to his investments. “With yields dropping, his debt portfolio will gain. And, yields are expected to be low till the end of May, which means returns will continue to be good,” Agrawal adds.
Investors nearing retirement could start shifting their money from equity to a safer haven such as debt, as capital protection is of prime importance at that time. “About eight-12 months prior to your retirement, you should shift 80 per cent funds from equity to debt. You should resist buying equity, but could invest up to 20 per cent in an equity-oriented balanced fund (one year returns = 9.62 per cent) for the upside in the portfolio,” advises Anil Chopra, Group CEO at Bajaj Capital. Equity-oriented balanced funds invest up to 65 per cent in equity and the remaining in debt and are taxed like any other equity fund.
But if you looking at starting investments, experts unanimously advise the systematic investment plan route. Beginners are recommended equity diversified funds or balanced funds for the risk-averse.
