As the equity markets touch new highs, many investors are left in the lurch trying to decide what they should do next. While some are excited by this prospect, and want to invest more to make the most of the peak, others are wary of overvaluation and choose to exit. Yet others want to sit tight and see how things turn out before taking a call. Here are the strategies of few such investors to help you decide what the best course of action could be.
Meet Mumbai-based Arjun Amlani, 32, a chartered accountant by profession. Over the past month, Amlani has stopped three SIPs out of the four he had. “The stocks that my mutual funds were holding looked over-valued to me,” says Amlani. In a rising market, there are bound to be multiple opinions about valuations. Only in hindsight would we know if the valuations were expensive or not. “If we look back at the Nifty level of 9,000, valuations looked expensive then, but the market is up more than 10% from there,” says Kunj Bansal, ED & CIO, Centrum Wealth Management. Amlani had been investing Rs 15,000 a month through the three SIPs for two years. Not only is it too early to judge the performance of the funds, but is also unwise to take a call on individual stocks’ valuations when investing through SIPs. “Taking a view on SIPs defeats the whole purpose of opting for systematic investing,” says Ashwin Patni, Head, Products and Fund Manager, Axis Mutual Fund.
Although Amlani got a pretty decent return of around 15%, he was still not impressed. “I opted for SIPs only because of the fear of missing out,” he says. “My direct equity portfolio has given me much better returns, in the range of 25-60%, over the past eight years,” he adds.
In Pic: Arjun Amlani 32, Mumbai
Existing equity portfolio value: Rs 23 lakh in stocks and mutual funds.
Action taken: Stopping three SIPs because of high valuations.
Is it a good idea?
No. This defeats the whole purpose of systematic investing.
Opting for SIPs should not be a function of fear. Further, like stocks, mutual funds too need time to prove their mettle. Being a finance professional, Amlani understands the power of equity for wealth creation, but has more faith in buying stocks on dips and selling them on highs. “A better strategy would be to buy stocks that are fundamentally strong at all levels to reduce the risk of losing out on a good stock,” suggests Pankaj Karde, Head, Institutional Sales and Trading, Systematix Shares & Stocks.
Making the most of it
Some investors, on the other hand, are looking to invest more through SIPs since these have yielded good returns so far. However, taking such ad-hoc decisions based on market levels can hurt your portfolio. “Typically, after a bull run, SIP returns will look attractive, but taking only short-term performance into account before starting an SIP can prove counter-productive,” says Deepak Jasani, Head, Retail Research, HDFC Securities. Neither starting SIPs nor stopping them should be triggered by market conditions. Opt for them only if your financial goals and target asset allocation plan allow for equity exposure. “For instance, if you are underweight in equity based on your asset allocation plan, you can start afresh even at current levels, in a staggered manner,” says Harsha Upadhyaya, Chief Investment Officer, Equity, Kotak Mutual Fund. “On the contrary, if you are overweight, you might want to rejig your portfolio and invest in other asset classes,” he adds.
Waiting it out
During bull markets, some investors have the tendency to sit on the sidelines and wait for a correction. Delhi-based Shourya Asthana, 36, a product designer, is a case in the point. “I believe, when the US Fed increases interest rates, our markets will correct,” says Asthana. However, small investors are better off not trying to predict such market movements. “Waiting for correction in a bull market can turn out to be futile. Buying in instalments is a better strategy,” says V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services. Bansal concurs: “Instead of taking such cash calls, which are driven by biases, look at stocks that are relatively better valued.”
In Pic: Shourya Asthana 36, Delhi
Existing equity portfolio value: Rs 12.75 lakh in stocks and mutual funds.
Plan of action: Waiting for correction to buy good stocks.
Is it a good idea?
This strategy may not always work. It is best to invest systematically, across market levels, in both stocks and mutual funds to win in the long run.
However, sitting back and doing nothing may be a good strategy for some investors, like Chetan Singh. This 29-year-old Bengaluru-based MNC employee has been investing systematically through market ups and downs for seven years. “I invest Rs 20,000 a month to meet a range of goals, from taking a vacation to retirement.” says Singh. While SIPs should continue across market levels, it’s important to note that this calls for reviewing and rebalancing, especially if your target asset allocation goes haywire.
In Pic: Chetan Singh 29, Bengaluru
Existing equity portfolio value: Rs 7 lakh in mutual funds.
Plan of action: Continuing to invest through SIPs.
Is it a good idea?
Yes, but fund performance must be reviewed regularly.
Looking for better value
Pune-based Akshay Natekar, 33, is self-employed and looks to buy quality stocks on a regular basis, irrespective of market levels. “This approach has helped me accumulate some really good stocks over the past 12 years,” says Natekar, who has a direct equity portfolio of Rs 8 lakh. He now wants to accumulate Rs 25 lakh, so that he can opt for portfolio management services (PMS). “I believe PMS will earn me 1-2% more return than mutual funds and also help diversify my portfolio,” says Natekar, who has also built a mutual fund portfolio of Rs 37 lakh. However, it is more advisable for retail investors to stay away from riskier options like PMS and opt for mutual funds instead.
In Pic: Akshay Natekar 33, Pune
Existing equity portfolio value: Rs 45 lakh in stocks and mutual funds.
Plan of action: Buying quality stocks at regular intervals and continuing with SIPs.
Is it a good idea?
Yes. But it’s best not to over-diversify a portfolio with too many stocks and mutual funds.
Rebalancing for success
The current market conditions also call for rebalancing and decluttering your portfolio. Coimbatore-based Muthuraman RMB, 28, is an IT professional. He holds a total of 10 mutual funds, five of which are sectoral funds. “It has become a headache to manage these funds,” admits Muthuraman, who is now looking to rebalance and trim down his portfolio by moving out of sectoral funds.
In Pic: Muthuraman RMB 28, Coimbatore
Existing equity portfolio value: Rs 5 lakh in mutual funds.
Plan of action: Rebalancing portfolio by moving out of sectoral funds.
Is it a good idea?
Yes, it is best not to invest too much in thematic funds.
While investing in concentrated themes likes sectoral funds can help deliver encouraging returns during growth phases, it can hit you hard during a lull, since they’re cyclical and riskier than large-cap and diversified equity funds. “Multi-cap or diversified funds are the best category of equity mutual funds. Also keep in mind that market moves are more stock-specific than sector-specific,” says Karde. “Small investors should leave sector allocations to financial experts,” adds Aditya Makharia, Head of Research, Motilal Oswal Mutual Fund. Muthuraman’s new strategy is to hold only four funds across the main categories—large-, mid- and small-caps, balanced and diversified.