Nifty @ 10000
“Nifty @ 10000”
Buy Sell or Hold Mutual fund
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Indices have witnessed an all-time high in July. Every
day there is movement in different indices. It took 90 days to nifty for
moving from the level of 9000 to 10000 on the index. Now, what next? This is the major question coming to every
investor's mind. Mutual fund investor preliminarily chooses funds as an investment
vehicle because they are not much aware of the markets or they don’t have
time to monitor the market on regular basis but extraordinary movement in market
has made them cautious.
What to do on these levels of different indices?
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This is the most important question which every investor is
facing as of now. We have to understand the different aspects of the market. Markets
move on strong fundamental growth of the economy, government decision-making
ability and corporate earnings. We say that strong indices are a reflection of
a strong economy which is absolutely true also. When a common man gives more weight
age to unassured returns in front of assured returns, it automatically gives an
indication that the common man is ready to take on risk and reward formula. Today
if we see different asset classes in short term, midterm and long term
perspectives than we need to accept the fact that no asset class can
generate higher returns than equities. People are ready to take a calculated
risk by solid diversification. People have shown their acceptance for equity
product as a different aspect of the economy and corporate earning is giving an
indication that India as an economy is becoming a superpower. Our consumption level
with approx 1.34 billion population is very high. We are now ready to buy new
products every month or year. We as Indians started spending money on luxury
goods which was not much visible before the 2000 era. So in total, spending culture
has changed along with earning levels of common man. Indian economy is growing
on pace of 7.5% GDP growth rate, our middle class, and the upper-middle-class has
more money for spending.
Markets move on liquidity and it is happening as well. Now
the investor doesn’t find many lucrative returns on FDs, Real estate & gold.
Investors are ready to take a risk as they believe that in longer run equities
have always outperformed any other asset class. Liquidity by way of SIPs and
Mutual funds aggressively coming in the stock market. In the Last quarter, only our domestic
investors have pumped in equaling money in the stock market with FII’s. We have to
accept this fact that aggressive liquidity is coming from FD liquidation and
other asset classes. This trend is going to continue. As of now FDs and other
class returns are not even beating inflation which forced investors to look
equities as a better investment vehicle. In June only, investors infused
4.9k Cr by way of SIP in the stock market. This liquidity is huge for the market and
that is the only and biggest reason behind the extraordinary movement in the
market and trust me this trend is going to continue as risk and reward ratio of
equity market is suiting investors. We have to accept this fact also that SEBIs
push towards SIP investment has aggressively brought results. Our
market has become more mature after 2008-2009 fall. Fundamental of the economy,
corporate earnings have become the most important aspect of the Indian market. News flow
for the common man has also helped investors to understand the positive aspect and
negative aspects of the different asset classes.
With the above table, you can very well
understand that direct equities and mutual funds are better return generator
for investors with more tax efficient. High liquidity compares to other asset
classes along with helping in goal achievement for longer run also made mutual
funds attractive asset class.
Is this the right time to invest?
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After reading the first phase of the article, we have to accept the
fact that we are in a long bull run phase but that doesn’t mean that the market is
not going to give chance to enter. High liquidity is going to take indices on
higher levels but you cannot and you should not time the market. Whenever you
try to time market you are going to lose and that is because as no one predicts
the market’s entry and exit levels. Timing the market is a tedious job and avoiding this mutual fund is the best product. We believe that after an aggressive
rally market is bound to take correction but this time corrections will not be
steep. Corrections will be not beyond 3-4% for the market. You can see small
correction starting after July derivative expiry. But each correction will be
followed by aggressive buying which will take indices on new levels. RBI is
going to be aggressive on rate cuts in the coming quarters which help incorporate
credit take-off and will help the manufacturing industry. GST will help in better
corporate earning in third and last quarter. These entire factors will help in
taking markets on higher levels which helps investors in generating higher
returns.
What should be the strategy for investment?
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Risk and reward ratio is still favoring equity products so
the question arises that what should be your strategy of investment?
1. Systematic investment plans: If you are a retail investor and
want to invest money regularly then choose this option. Don’t invest for
1-3 year horizon, invest for minimum horizon of 5 years and above. Results will
be better in 5 years plus period comparing to any other lesser period.
2. Systematic transfer plans: If you are sitting on cash and have
a lump sum amount to invest than choose this plan for investment and for maximum
benefit try to choose daily or fortnightly STP for best of rupee cost
averaging. Monthly STP will not help as monthly STP is going to transfer funds
on one specific date on which you may or may not get lower NAVs. In daily STP
you will be able to absorb all corrections of the market and it will also not delay
your investment transfer inequities for a better return.
3. Systematic withdrawal plan: Like you choose a vehicle for
investing money than you should choose a plan for profit booking also. All equity
funds are free from exit load after one year but still, our suggestion is this
to start your systematic withdrawal plan from 18 months onwards for taking out
your earned returns on your investment. And park these funds in lesser risky
products like MIPs, balanced funds or income funds.
4. Choose your target returns before
investment:
Higher returns are the main cause of high risk which converts into losses. Keep
your return target ready before investment. It will help you in minimizing risk
and will help you in taking the best of funds for better results with consistency.
5. Distinguish between need and greed: There is a thin line between need and
greed. Always keep a track of your need and cut down your greed by way of
profit booking ruthlessly. Decision making has to be very aggressive and it
should be quick. If you have achieved your targeted goals in Rs 10000 per month
then invest that much only. You should not squeeze your expenses for making
investment. Living life is also an important part of securing the future. 20% of
income invested properly can achieve your financial goals for the long term.
6. Diversification: You are very much comfortable in
equity and you have seen best of result of equities in investment but this
doesn’t mean that balanced funds, MIPs or income funds are waste products.
Always give full diversification to your investment portfolio for risk diversification
and better result. Don’t diversify too much also as some times it kills returns
as well. 4-7 funds are best for diversification.
7. Don’t choose funds based on
returns: We
have a habit of choosing funds based on their returns in last one year or 2
year. It may backfire any time because in Bull Run few stocks become very
attractive in the short term but in the longer run, they remain subdued. Suggestion is
to choose a portfolio of the scheme with consistency in fund returns from last 5 to
10 year. Before investment always check portfolio holding as well.
8. Financial planning: Last but not least, always take the advice of financial planner, wealth advisor for making an investment. No
investment can be done without knowing the need and purpose of investment. If done
so then it will be a directionless investment that will not fetch the best of
the result. A planner and advisor can assist you in different aspects of investment.
He can assess your risk profile, your long term, midterm and short term goals
of financial planning. Don’t choose product advisors as that is not going to
help you in financial planning achievement because he sees the product as a selling
point, not your goals.
These all are suggestions and outlook on the market. We believe
choosing the best of funds and assessing your risk profile will always help in
generating better returns. Always keep an eye on the fundamentals of the economy,
government decision making capability with liquidity available in the financial
market. Corporate earning is also key factor so always remain updated on news
flow for better decision making.
Disclaimer:
Mutual funds are subject to market risk, kindly read scheme related documents
before investing. Author Mr. Rohit Khandelwal is associated with www.moneymatters.co.in and AMFI certified mutual fund advisor. His ARN code is
121821.
All
views expressed in articles are the author’s personal view. Moneymatters.co.in
doesn’t guarantee accuracy of views.
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doesn’t guarantee any return. Reader’s view is at his own discretion.
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