The Indian stock markets are in a downtrend since November 8, with the BSE Sensex losing close to 1500 points since then. It is common knowledge that the key triggers causing this uncertainty and volatility are the Prime Minister’s demonetization announcement, followed by Trump’s victory in the U.S presidential elections. Though market pundits feel that this is just a short term trend and the initial reaction to the sudden news, it is hard to predict the market trend in the medium term.
So how does the common man/investor deal with the equity part of his investments in the current scenario?
- Direct Equity/ Investment in shares – If you have a well-diversified portfolio of stocks which has been picked based on sound fundamentals and professional guidance, relax! However tempting it may be to sell/book some profits when you see the prices fall a bit every day, do not panic. Stick to your long term strategy and the investment time frame. And for those who have a dormant portfolio equity portfolio invested long time back and not actively monitored, the earlier they sit up and take stock, the better. Irrespective of how the market is doing.
- Equity Mutual Funds – SIP investments work on the rupee cost averaging concept, so are not affected by market ups and downs .(see https://srirakshafp.com/2012/03/27/understanding-the-rupee-cost-averaging-concept/) . Lump sum equity investments should be given a time frame of at least 3 to 5 years to deliver the target returns. Those who have held on to their investments have benefited much more than those who have acted on impulse and tried to en cash their investments to salvage the remaining profits.
Here is how diversified equity funds have fared over the long term
|Category||3 years return (%) *||5 years return (%)*||10 years return (%)*|
|Pure Large Cap funds||19.84||15.95||10.92|
|Pure Mid cap Funds||35.9||23.58||16.02|
|Value Style Funds||27.78||20.31||15.32|
|Hybrid/Flex i cap funds||22.70||17.00||13.49|
*Average returns of the category per annum. Source – Bajaj Capital.com
This clearly shows that irrespective of the time of entry and the intermittent volatility those investors who have held on to their investments have never regretted.
- If you need cash or were planning to book profits – A falling market is surely not a good time to sell stocks especially to meet unanticipated expenses; which is why any competent financial planner or advisor will always advise his clients to have some cash in the portfolio for emergencies. And if you plan to redeem because the investment has generated the target return, do go ahead. Always stick to the investment strategy and financial goal.
- If you have cash to invest in equity – Thanks to the one week slide in the market, almost all the blue chip stocks are now available at a discount. Don’t miss this opportunity to buy fundamentally strong stocks at a bargain. A word of caution – do not get lured into investing in stocks which have corrected the most-that could also be because the business model isn’t strong enough or due to some adverse news or development in the company.
The National Pension Scheme or NPS which was launched on 1 May 2009 was a major move by the government to convert the pension system from a defined benefit scheme to a more flexible defined contribution scheme with a range of investment options for the investors. But even after more than five years since it started, despite the government’s backing and low charges, it is yet to take off as a popular tool to save for retirement. This could be attributed to firstly the difficulties faced in opening the account – in post offices and the specified banks, where many times the employees themselves are not aware of the product and secondly the product limitations.
Over the last couple of months most of us are likely to have heard of the recently launched low cost Pradhan Mantri Schemes, thanks to the huge publicity through advertisements, hoardings and our personal bankers sending us emails on how to avail of these. Though most of these are low premium, low benefit schemes primarily targeted at the lower income group, it is open for all. If one does not need these for himself or herself, he or she can help their domestic helps/workers and businessmen can encourage their employees to subscribe to these. More details as follows-
Pradhan Mantri Jeevan Jyoti Bima Yojana Continue reading →
The Sukanya Samriddhi Scheme was launched in January 2015 by the Indian Prime Minister under the “ Beti Bachao, Beti Padhao” initiative of the Government of India. The objective of this scheme is to financially secure the future of the girl child – who is still considered a liability on parents in many sections of our society.
Accurate estimation of the return on investment is important to an investor. It not only gives him a clear picture of how his investments have fared, but also enables him to compare the returns of fundamentally different investment options available in the market. The EAR and CAGR are two of the most important concepts/calculators, which cover the investments with a fixed rate of return and those which do not grow at a constant rate and fluctuate widely over the holding period.
Effective annual rate (EAR) Continue reading →
We are in the month of March and the mutual fund market is flooded with new fund offers from almost all the leading asset management companies. Most of these are closed ended debt oriented plans with tenure of three years and above.
Three months have passed since the last late of filing individual tax returns, which was 31st of July. Many of us who applied for a tax refund have already got it, and some are still waiting, and a few may have to wait longer or may not get the refund at all. The general tendency is to blame the Income Tax Department – calling it a typical Indian public sector organization, inefficient, slow, lacking professionalism etc. While this may have been somewhat true in the past, it is not the case today, with the new online version of Income tax India introduced a few years ago.