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The Sensex is breaking new barriers, reaching historic highs and creating waves of enthusiasm in the minds of the one and all. The victory of the bulls over the bears has resulted in the Sensex racing to unprecedented highs. In the midst of such enthusiasm it is important for investors to plan out their investments with due care and caution. Investors should not get carried away by the booming Sensex. This is the time for introspection where investors should analyze their needs before taking any major investment decision.
So the questions that are require an answer at this point of time are: Firstly, is it the right time to enter equity markets for a new investor? Secondly, what should be the strategy for the existing investors? Thirdly, in case equity investments are not a viable option, what are the other avenues that a person can consider?
Any investment plan should always be a function of your needs, requirements and your profile. The most important factor should be one’s own individual needs and requirements and not the levels of Sensex. It is important for investors to adopt a disciplined approach to investment. Thus, for an existing investor it is important to revisit the portfolio at such levels and redeem his units to make his risk return proportion in sync with his profile. Generally it is always better to revisit your investment portfolio regularly so as to ensure that it is in sync with your requirements. When a person is in his early 20s he is advised significant exposure to equities as his obligations and commitments are quite less. As a result he can have a significant exposure to equity and equity related instruments. However, when the individual gets married and has children, it is felt that his risk appetite should be reduced as he has obligations to fulfill. The obligations can be towards his family or towards his child’s education, marriage etc. Suffice it to say that since his obligations have increased his exposure towards equities should be reduced proportionately. When the person is nearing his retirement, his exposure to equities should further decline.
Stock market is essentially a reflection of sentiments. Under the current scenario there are positive sentiments about the markets. In case the investor is interested in investing over a long time horizon then it is perfectly acceptable to invest at this time. Thus, while entering at this time it is always better to invest with a long-term horizon. Once the investor has decided to invest, there are two options that are available to the investor. He can either choose to invest regularly over a period or invest in lump sum amounts whenever he deems it fit to do so. While the first option of regular investing is all about disciplined investing, the second approach is about attempting to time the market. If one is lucky enough, his timing may prove right and he may gain more. However, such an approach is extremely risky as it is a well-known fact that markets cannot be timed. Under the current scenario it is advisable for investors to enter the market through regular investments. Systematic investment plan and value averaging are two techniques of approaching investments in a phased manner.
SIP is increasingly gaining popularity among the retail investors. SIP is a mode of investment in mutual funds wherein an investor can invest a fixed amount regularly irrespective of the market level (on monthly or quarterly basis). The fixed amount is either directly debited from the bank account or is paid using post-dated cheques. Through this regular investment routine, one is able to invest in a disciplined manner. When one invests over a period using SIP the cost of units acquired is not dependent upon the prices prevailing at a particular point, but over a period. This method reduces the risk of entering the market at the wrong time.
For those investors who are interested in entering the market for a shorter time frame, we advise to wait for a correction. It is a well-known and accepted principle that equity investments act as a shield against inflation. But investing blindly in equities may not be appropriate. Investors will have to carry out a close analysis and introspection before taking a final call relating to the investment decision. A careful investment decision made after due deliberation can in fact make you “sizzle with the Sensex!”