Volatile market: Investors should reinvest returns from liquid scheme in mkt
One should not get worried about temporary blips on bourses and change investment style, say experts. Tips for right investment
By Madhu T, TNN |
Bears are an ugly sight. They can be scary, too. No wonder , nobody likes them at Dalal Street. Ever since bears have started moving in, many investors have been looking for ways to deal with them. Can you beat the bears, many were heard asking themselves . But looking at the pattern in the market last week, it seems they have to really slug it out if they want to succeed.
Sure, there are still some positive attitude left in the market. However , bears have enough ammunition���be it the global economic woes, spiralling inflation or possibility of a slowdown���to keep bulls from going on the rampage. At least, for sometime. What can an extra cautious investors, who wants to adopt a defensive strategy, can do in such a situation?
Sure, there are still some positive attitude left in the market. However , bears have enough ammunition���be it the global economic woes, spiralling inflation or possibility of a slowdown���to keep bulls from going on the rampage. At least, for sometime. What can an extra cautious investors, who wants to adopt a defensive strategy, can do in such a situation?
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���I think it would be more of an academic exercise. I wouldn���t want a lay investor to get worried about short term blips in the market and change his investment style,������ says a senior mutual fund manager. ���It may do more harm to his portfolio than earning extra or protecting the corpus.������
His point is: staying in the market over longer period of time is the only way to make money from the market. You must have heard the mantra: invest regularly in small sums over a longer period of time is the proven method to make money from the stock market. Sure, nobody is advocating investors to cash out at the mere sight of a bear somewhere in Dalal Street. But some ���academic exercise��� ��� once in a while won���t do any harm, right?
Our fund manager gives in. ���One of the commonsensical, or genuine reaction to a volatile market is the tendency to book profit and sit on the sidelines,������ he says. ���If you have achieved your profit target or very close to it, you may consider booking profit. Then wait for a better opportunity to re-enter the market,������ says the fund manager.
Suresh Sadagopan, chief financial planner, Ladder 7 Financial Advisories, offers a more refined solution to the problem. Whatever money you are taking out of the market, park it in a relatively safe avenue like liquid scheme of a mutual fund and use the systematic transfer plan (STP) to enter the market. This would address two problems. One, you wouldn���t redeploy the money at one go, so that timing would become crucial.
Two, since you are transferring the money at regular intervals and investing in the market , you can benefit from the cost of averaging . This means your purchasing cost would average out over a period of time and it would enhance your potential returns. If you want to be even more defensive, use only the returns you are getting from the liquid scheme to reinvest in the market, says Sadagopan.
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Another way out could be hunting down companies with a very good dividend paying record. Look for companies that pay dividend consistently in the last few years and invest in them. This would assure that you would get returns irrespective of the movement of the stock in the market. ���It is a very good plan as it would assure that you would get a return of around 6-7 %,������ says Sadagopan. Remember to do your homework thorough here, though. Uncle scam is the scarecrow in the market at the moment, right? Find out sectors that wouldn���t be affected by a possible economic recession in the US economy and also not dependent on dollar earnings. ���I think, for example, FMCG and infrastructure won���t be affected by the US slowdown. These sectors should continue to grow,������ says Sadagopan. Having said that he says over a long period dips are good buying points if you want to create wealth.
Now, all these strategies were for people who want to be in the stock market, but want to play safe. But what about people who want to take the risk at all. Well, they have to park their money in debt instruments like fixed maturity plan. Though in theory you may not lose money in the stock market over a long period, it is still a risky investment. If you want assured returns plus safety of your corpus, you should chose debt instruments.
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