The equity markets are at an all-time high with Sensex
recently breaching the 80k mark.
This has been a reality due to improved earning results of
Indian companies along with the slow and gradual shift is assets from savings
account to mutual funds.
The continuation of the previous government has also played
a role since this would imply the extension of the previous policies.
Whenever the equity markets hit a new high, it brings along
with it a unique set of challenges for investors.
Should I continue with my SIP investments?
Systematic Investment Plans more popularly known as SIP’s
are a fantastic mode via which you can achieve rupee cost averaging.
SIP’s are by no means a full proof loss avoiding method, no
such method exists for equity investing.
What it does though is negate the volatile nature of the
equity markets to a large extent.
This will only work if you do not skip installments and have
a long term horizon.
The ongoing market conditions should have no bearing on the
starting or the continuation of your existing sips.
Should I sell certain holdings/book profit?
Definitely not until and unless there is an emergency of
sorts, in which the market valuation should be the least of your concerns.
Redemptions should be based on goal realization and not
market valuations.
This is precisely why allocating goals to your equity
investments is a very healthy approach.
You only redeem when your goals have been achieved,
irrespective of the prevailing market conditions then.
If you keep booking profits each time the indices touch new
peaks, you will be regularly active which is not a great sign for long term
investing.
How to invest a Lumpsum amount?
A lumpsum investment can be invested via the following
modes:
- One time lumpsum investment
- Systematic Transfer Plan (STP)
- Periodic switches
Now as to which mode you should opt for would depend on
several other factors like your:
- Risk appetite
- Type of scheme
- Duration of holdings
All in all do not shy away from making lumpsum purchases
when the markets are on the up cause you can always stagger your investments.
Asset Allocation
Asset Allocation is not just a fancy word but something that
is very effective.
It refers to the allocation of your saving/investments with
different asset classes rather than relying on just one asset class.
Diversifying your savings/investments is extremely
important.
Examples of certain asset classes are as follows:
- Gold
- Equity
- Debt
- FD
- PF
- Physical Property
Gold as an asset class can be a great hedge against
volatility which is why it does well when say there is a geopolitical crisis as
opposed to equity, this is a great example of how two different asset classes
behave during the same event.
Having said that gold is not a great long term investment when
compared to equity returns.
PF is something the salaried folks look forward to as their
retirement plan, the returns are fixed unlike equity but pf returns hardly beat
inflation.
Physical Property is tangible unlike equity but it struggles
with liquidity issues unlike equity that can redeemed and realized in your bank
account within a couple of days.
Asset allocation therefore means you are not perturbed by
the inherent volatile nature of equity markets, the make up of the asset
allocation would further depend on several factors like:
- Age
- Risk appetite
- Returns expectation etc.
The younger you are, the longer you can wait and in such
cases a higher allocation towards equities is justified assuming you have an
emergency fund in place and your expectations are realistic.
Perspective
Markets hitting record highs and a market with high
valuation are not the same.
The major market indicators in India are Sensex and Nifty.
If the companies that form the two indexes are fairly valued
and if they as a whole hit record highs then that does not imply the markets
are overvalued.
An overvalued market would imply the true picture is not as
rosy as the numbers would imply.
The same cannot be said when the markets hit record highs.
India is one of the fasting growing economies of the world
and because of the low base effect it should continue to grow for quite some
time.
We have a lot of catching up to do with the rest of the
developing economies, let alone the developed ones.
Considering where we are and where we are headed, it is only
logical to stay invested in equities for the long term as the equity markets
eventually catch up with economic growth.
Keep in mind that new highs does not necessarily equate to
high valuations and staying out of equities completely of one of the fastest
growing economies of the world would be nothing short of a self goal.
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