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Posted On Monday, Feb 09, 2015
The stock markets are roaring to new highs in such quick succession. Markets are hoping that the Union Budget to be presented at the end of this month will contain a number of reform measures, including some for boosting infrastructure. If the expectations from the Budget are not fulfilled, the fear is that markets may take a fall. Oil prices and rupee-dollar rates too appear to be in the swing mode with both gains and losses in the last few days. On the commodities side with all the uncertainties in the US and Europe, gold looks set to see some consolidation just below the $1300 an ounce mark.
This has left a few investors wondering what action to take - Should I buy more units? Sell away units… or simply watch??
Where are we headed? Is the bull rally going to last for many more months... or will it fizzle out? Are we at the top and about to topple?? Moreover Delhi election results will be out tomorrow morning, will it set the tone for the markets for the next few days?
These could be some of the questions buzzing in an investor's mind. And it is no joking matter. Their future goals - child's higher education, home buying and retirement - depend on their investments, at least in part.
But it is one of the most dangerous things an investor can do. Try to time the market…
Timing markets - the most dangerous thing to do
Smart investors know it is impossible to consistently predict the next market turn. In fact if you asked Quantum AMC's research & investment team they wouldn't have any views to offer on S&P BSE Sensex level 3, 6 or 9 months. The fund managers would tell you squarely that they do not time the markets. They’d tell you about how their approach is process-driven, where they look at valuations of stocks. While all of them are firm believers in India’s long term growth story, they do not make investment calls based on market levels.
Trying to time the market makes you vulnerable to loss. Studies point out that our brains are "wired incorrectly", especially when it comes to making investment buy and sell decisions. So you are not alone... it applies to the majority of us; even some great investing minds have been affected by it.
So what do wise investors do? They lock out the idea of market timing by investing at regular intervals and relying on what is known as, rupee cost averaging.
Systematic Investment Plan (SIP) - it is one of the simplest and most effective strategies ever to create wealth over long periods - while avoiding speculations.
In an SIP you keep buying a fixed number of units at regular intervals for whatever price (NAV) they're available. This means when the markets are soaring you buy few units and when they depressed you buy a lot of them. This way you average out the highs and lows smoothly. In other words you are leveraging on rupee cost averaging.
If you are new to mutual funds SIPs kindly go through the easy steps on how to start an SIP. At times when the markets are highly volatile, as they are now, SIP is highly recommended as against lump sum investments. Even if you have a lump sum amount to invest it might be better to break the investment into smaller amounts using an SIP.
Rebalance your portfolio
When going through volatile market conditions for an extended time it is likely that your asset allocation would have shifted from the ideal. For the long term health of your portfolio it is important to revisit your investments to rebalance them. For instance the recommended asset allocation would have suggested a 65% equity exposure for you with the rest allocated in debt funds, FDs, gold etc. However a continuing rally in equities would have taken your portfolio's equity allocation to 75-80% levels. This makes rebalancing a necessity.
Yet this is not to be taken overboard. Checking returns and portfolios month on month may not be recommended; you can check the status every 6 months to know where your asset allocation stands. You can consult your financial advisor for more guidance on the same.
Have an exit plan
Do you have a strategy of when and how to redeem your investments? This is very crucial. Without it you would find yourself cringing at every market tide. At an upheaval you'd be tempted to believe this is the best time to get out, and at the next fall the regret that you lingered too long.
The correct strategy to plan your exit would be one that is linked to your investments goals. For instance, if you are investing in equity funds for your retirement 20 years away, as you approach it you can withdraw funds in set intervals using the Systematic Withdrawal Plan. Your financial advisor would be able to devise an appropriate strategy based on your goals.
So go ahead, don't wait or signs and signals. Let no questions about market levels give you sleepless nights. Have an investment plan in place, rebalance and stick to the plan and exit when it is time. This way any time would be the right time to invest.
Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.
Mutual fund investments are subject to market risks read all scheme related documents carefully.
Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.
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