1. Equity & Debt markets in India are going through a very volatile phase which would have affected these two major asset class portfolios negatively. This could be visible in your Stock, Equity Mutual Fund and Medium/Long Term Debt Mutual Fund portfolio.
2. As always, risk management plays a very large role in managing these risks apart from benefiting from such opportunities. Do remember volatility is a friend of long term investor and enemy of short term investors.
3. Long term returns of Equities over longer periods of time (10 years and above) are a slave of earnings. However, the short term performances are more of function of market sentiments, liquidity and other short term factors. Hence, Equity linked investments should be used to fund financial goals which are ideally greater than 5-10 years.
4. Investors should have a target allocation of Equity and Debt (Fixed Income) in their overall wealth portfolio. The target allocation should be based on one’s risk bearing capacity, time horizon and income requirements.
5. While investing in the stock portfolio it is very important to focus on 10-15 large cap companies. Similarly, Investors in Equity Mutual Funds can pick up 4-5 multi cap funds and build this portfolio. It should be noted Equity portfolios (Stocks or Equity Mutual Funds) should be invested with a minimum investment term of 5 Years and more. Invest gradually to benefit from market volatility and reduce the risk of market timing.
6. Investors could also have diversification in International stocks through International Equity Mutual funds.
7. Severe correction in Small Cap Companies gives an ideal opportunity for investors to build small cap portfolio in funding their Long Term goals. This however should be with a 10 years plus time frame. Maximum allocation of 20% of Equity Linked investments would be ideal.
8. Continue investing in tax efficient products life PPF, NRI FD’s (only for NRI’s), and Medium Debt Mutual Funds etc.
9. Medium Debt Mutual Funds should be invested in 3 years plus horizon as they give better tax efficient returns comparable to bank FD’s (not withstanding last one year’s volatility).
10. Investors with short term horizon could invest in liquid funds (up to 3 months), Ultra Short Term Funds (up to 6 months) and in Arbitrage funds (between 6 months to 1 year) to get better returns compared to the banking products.
11. Avoid complicated products especially tradition insurance plans, Unit linked insurance plans and structure products. This would be more costly and non transparent.
12. Over long periods of time, financial product selection and market timing would not be the critical factor in your overall portfolio return. On the contrary, a strategy focused on process, discipline, financial goals, time horizon, patience, asset allocation and diversification could be the key factors to earn better risk adjusted returns. Do not confuse luck with skill.
13. Always have an emergency and protection portfolio. This would comprise of emergency fund (to take care of mandatory expenses of 6 to 12 months), medical insurance, disability insurance and term insurance. Kindly note emergencies do not come with any prior intimation but will have a large affect on your entire personal finances.
14. Talk to your Financial Adviser (who is experienced, qualified and registered), in case of any doubt. Financial advisers will not assure you any returns but give you clarity on your Long Term financial journey.
1. Market linked investments like Mutual Funds and Equity share investments are subject to market risks. Kindly read the scheme information documents carefully before investing.
2. All other investments too have different levels of risk like credit risk, regulatory risk etc. Appreciate this before initiating any investments.
3. Past performance of any asset class is not an indicator of future performance.
4. It is very important to consult a Professional Planner/Investment Advisor while implementing any of the above ideas.
5. The above are mere suggestions and not Investment Advice as individual cases might differ.
In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or firstname.lastname@example.org.
Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
01st November 2018