Worried about market volatility? 5 steps that can help your mutual fund portfolio
While the future remains uncertain, many investors may find it difficult to digest the change in the environment.
The mood has changed for sure. Till the first week of the August it was the talk of a new high that ruled the investors’ minds. However, as Doklam and North Korea started taking more air time on news channels the market’s mood changed quickly. Instead of a new high, it turned to - how deep the cut will be? While some experts made a case of a bounce-back, many more were busy speculating a fall. Some gave targets such as 9,000 or 8,750 on Nifty over next few months. While the future remains uncertain, many investors may find it difficult to digest the change in the environment. Mutual fund investors, especially the first timers who invested in equity funds may be a bit uncomfortable. Here are five things you can do now to reduce anxiety.
Check your goals: If you have been a bit scientific in your approach, you must have invested using goal based planning approach.
Check your asset allocation in the light of your goals and the timeline, and you can take a more informed decision. Due to the rally in stock markets, if you are closer to achieving your goals consider selling the equity mutual funds and park the money in fixed deposits. The fixed deposits can fill the small gaps, if any, over the remaining period of time.
Consider one more situation. Two years ago you had a goal in mind which was due in seven years. The strategy was to invest in equity mutual funds for first three years and hold on to all the investment till the end of five years. In last two years, you were to sell your equity investments through systematic transfer plan. But the rally in the last two years has been rewarding much beyond your imagination. What would you do now?
Check the corpus today. If the corpus in equity funds along with regular further investments in bond funds is enough to pay for your goal, you may choose to stop your SIP in equity funds. All your future investments can be done in bond funds. You may choose to sell your existing equity funds as per your original plan as you approach closer to your original goal deadline.
If you are investing for long term goals such as retirement which are couple of decades away, just do not bother much. Stay firm on your investment plan and continue your investments. Too much of activity simply leads to unnecessary transaction costs and taxes. “Stick to your asset allocation. Sell equities if you are overexposed to stocks and equity mutual funds,” says Mohit Gang, ceo and co-founder of Moneyfront.in.
The trouble begins when you have been investing without clearly defined financial goals.
Pause your SIP
If you are worried about the current market levels and are not comfortable with large equity exposure, consider a pause. You should never stop your mutual fund SIP, you are told. But do not invest at the cost of your peace of mind. Ideally one should continue with his SIP when the sentiment is poor as one gets an opportunity to shop more units as the markets are on their way down. But if you are worried about the high valuations, you may choose to pause. But pause with a clear objective to restart your SIP at lower levels.
A risk here - what if the markets never come down? Then you run the risk of investing even at a higher level. “Studies in the past reveal that the money is made by those who remain invested in the market. So it pays to continue with your investments. It is time in the market that rewards you,” says Mohit Gang.
But it is easier said than done. Most mutual fund investment platforms offer you the facility to temporarily stop your SIP for a month or two. A better solution is to avail the pause to ponder over your investment plan. Try to marry your investments with your goals and then you can better decide on your investments.
Go for less risky products
If you are heavily invested in mid and small cap funds, consider switching to large cap funds. “Valuations in small cap space are rich. Historically it has been seen that small and mid cap stocks see more erosion as compared to large cap stocks when markets correct
You may also consider investing in hybrid funds if you want to further reduce risk. For example, you may switch to balanced funds or equity saving funds from diversified equity funds. “Equity saving funds invest up to 35% of the money in stocks and offer tax treatment of a equity fund. That enhances returns at moderate risk,” says Abhinav Angirish, founder and ceo of investonline.in, a mutual fund distribution entity.
Triggers
Many fund houses offer you facility to transact based on a given condition. It is called trigger facility. You may choose to instruct the fund house to switch your equity investments to liquid funds if the index touches a particular level, say 9500. You may also ask for a switch if your fund value goes below a particular level. Triggers can help you sleep peacefully. If used wisely you can protect your investments in equity mutual funds.
Sell down to the sleeping point
The book Reminiscence of Stock Operator gives this important tip to all investors and traders. If you can’t sleep peacefully because your investments in equity mutual funds are wearing you out, it is time to sell it to a point where you are comfortable with your position size.
If you are fully invested in equity funds, you may also consider switching some money out of equity funds to liquid funds. This will correct your exposure to stocks and free some cash. The cash on hand (parked in liquid funds) then can be used to shop on Dalal Street if you see some volatility.
“Use weekly systematic transfer plan from liquid fund to equity funds or balanced funds to invest your money in case you see correction in the stock market,” says Abhinav Angirish.
Put simply, it is time to sit back and think before you act. Do not be reckless with your money nor be too cautious with your investments in stocks and equity mutual funds.
Happy investing
Source:Moneycontrol.com
While the future remains uncertain, many investors may find it difficult to digest the change in the environment.
The mood has changed for sure. Till the first week of the August it was the talk of a new high that ruled the investors’ minds. However, as Doklam and North Korea started taking more air time on news channels the market’s mood changed quickly. Instead of a new high, it turned to - how deep the cut will be? While some experts made a case of a bounce-back, many more were busy speculating a fall. Some gave targets such as 9,000 or 8,750 on Nifty over next few months. While the future remains uncertain, many investors may find it difficult to digest the change in the environment. Mutual fund investors, especially the first timers who invested in equity funds may be a bit uncomfortable. Here are five things you can do now to reduce anxiety.
Check your goals: If you have been a bit scientific in your approach, you must have invested using goal based planning approach.
Check your asset allocation in the light of your goals and the timeline, and you can take a more informed decision. Due to the rally in stock markets, if you are closer to achieving your goals consider selling the equity mutual funds and park the money in fixed deposits. The fixed deposits can fill the small gaps, if any, over the remaining period of time.
Consider one more situation. Two years ago you had a goal in mind which was due in seven years. The strategy was to invest in equity mutual funds for first three years and hold on to all the investment till the end of five years. In last two years, you were to sell your equity investments through systematic transfer plan. But the rally in the last two years has been rewarding much beyond your imagination. What would you do now?
Check the corpus today. If the corpus in equity funds along with regular further investments in bond funds is enough to pay for your goal, you may choose to stop your SIP in equity funds. All your future investments can be done in bond funds. You may choose to sell your existing equity funds as per your original plan as you approach closer to your original goal deadline.
If you are investing for long term goals such as retirement which are couple of decades away, just do not bother much. Stay firm on your investment plan and continue your investments. Too much of activity simply leads to unnecessary transaction costs and taxes. “Stick to your asset allocation. Sell equities if you are overexposed to stocks and equity mutual funds,” says Mohit Gang, ceo and co-founder of Moneyfront.in.
The trouble begins when you have been investing without clearly defined financial goals.
Pause your SIP
If you are worried about the current market levels and are not comfortable with large equity exposure, consider a pause. You should never stop your mutual fund SIP, you are told. But do not invest at the cost of your peace of mind. Ideally one should continue with his SIP when the sentiment is poor as one gets an opportunity to shop more units as the markets are on their way down. But if you are worried about the high valuations, you may choose to pause. But pause with a clear objective to restart your SIP at lower levels.
A risk here - what if the markets never come down? Then you run the risk of investing even at a higher level. “Studies in the past reveal that the money is made by those who remain invested in the market. So it pays to continue with your investments. It is time in the market that rewards you,” says Mohit Gang.
But it is easier said than done. Most mutual fund investment platforms offer you the facility to temporarily stop your SIP for a month or two. A better solution is to avail the pause to ponder over your investment plan. Try to marry your investments with your goals and then you can better decide on your investments.
Go for less risky products
If you are heavily invested in mid and small cap funds, consider switching to large cap funds. “Valuations in small cap space are rich. Historically it has been seen that small and mid cap stocks see more erosion as compared to large cap stocks when markets correct
You may also consider investing in hybrid funds if you want to further reduce risk. For example, you may switch to balanced funds or equity saving funds from diversified equity funds. “Equity saving funds invest up to 35% of the money in stocks and offer tax treatment of a equity fund. That enhances returns at moderate risk,” says Abhinav Angirish, founder and ceo of investonline.in, a mutual fund distribution entity.
Triggers
Many fund houses offer you facility to transact based on a given condition. It is called trigger facility. You may choose to instruct the fund house to switch your equity investments to liquid funds if the index touches a particular level, say 9500. You may also ask for a switch if your fund value goes below a particular level. Triggers can help you sleep peacefully. If used wisely you can protect your investments in equity mutual funds.
Sell down to the sleeping point
The book Reminiscence of Stock Operator gives this important tip to all investors and traders. If you can’t sleep peacefully because your investments in equity mutual funds are wearing you out, it is time to sell it to a point where you are comfortable with your position size.
If you are fully invested in equity funds, you may also consider switching some money out of equity funds to liquid funds. This will correct your exposure to stocks and free some cash. The cash on hand (parked in liquid funds) then can be used to shop on Dalal Street if you see some volatility.
“Use weekly systematic transfer plan from liquid fund to equity funds or balanced funds to invest your money in case you see correction in the stock market,” says Abhinav Angirish.
Put simply, it is time to sit back and think before you act. Do not be reckless with your money nor be too cautious with your investments in stocks and equity mutual funds.
Happy investing
Source:Moneycontrol.com
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