In what seems to be an ongoing bout of global risk aversion following the yuan’s devaluation, equities and emerging market currencies have seen a significant correction. While one can argue that the global concerns are not without reason, what is clear is that there has been a rather indiscriminate correction in the stock market across sectors.
In our mail to you in end August, we had reiterated the need to stay invested, and to also invest more if you have surplus.
Now, after a 10 per cent correction in the Sensex in the past month alone (as of September 4, 2015) the year-to-date fall was about 8.4 per cent. We believe that this is a good time to dip into the falling market. While you might have a tough time wondering what individual stocks to buy (if you are an equity investor), it may be less of a hassle to buy a portfolio of stocks (read mutual funds) that are already managed by experts. We hope the following simple-to-plan-and-implement strategies can help you average well in this market.
Before, we move any further, a few disclaimers:
- One, you should be willing to take a longer bout of volatility i.e., at least until the end of 2015, and perhaps slipping into a quarter of 2016 as well.
- Two, you should not require the surplus you use for this in the near future, and also not expect it to generate overnight results.
- Three, the result of the strategies will show itself up only after a strong, undisturbed market rally takes over the volatile market we have seen this year. Hence, these strategies are not for short-, or medium-term investors.
- Your holding period from this point should not be less than five years.
Strategy 1: Average your SIPs further
If you are an existing investor through Systematic Investment Plans (SIPs), and have a lump sum of less than Rs. 1 lakh, then consider adding an additional investment (one time) to your current fund holdings. The year-to-date returns of most large and diversified equity funds are flat to negative. That means you will be buying into your funds at Net Asset Values (NAVs) close to, or mostly lower than their NAVs as of January 2015. That’s how you will average well.
(The funds in the accompanying table are given for illustrative purposes only. The NAVs and units have been rounded off.)
As to which funds in your holding you should choose, we would prefer large-cap funds, or diversified funds at this point in time for the simple reason that they have given off more gains as a result of heavy Foreign Institutional Investor (FII) selling in larger stocks.
If you do not have any SIPs running, then you may consider this approach (of investing in the existing fund) if you have made lump sum investments in the past one year. Do not expect averaging to work if you had invested a lump sum about two or three years ago. In that case, you may enter a new fund (large cap or diversified) if you are fine with adding one more fund to your portfolio.
Strategy 2: STP over a shorter time frame
If you have a larger surplus of more than Rs. 1 lakh in hand, you can consider parking it in a liquid fund (from the fund houses in which you have equity funds), and consider a Systematic Transfer Plan (STP) over 4-5 months; if you are keen, you can also set up a weekly STP over 16-20 weeks. This can again be done in the same funds in which you have your SIPs running, or in any equity fund in which you’ve made a lump sum investment in the past one year.
We are suggesting an STP so that you may park your surplus in higher yielding options such as liquid funds. However, if you rather wish to keep the sum in your bank account, then simply increase your existing SIP values over this time frame.
Why do we recommend this shorter period STP? We believe any volatility in the market, especially arising from FII risk aversion can last until the end of the calendar year for a few reasons:
- One, there can be further yuan devaluation;
- Two, any US Federal Reserve move can cause volatility;
- And three, policy log jam and state elections in India could keep the markets guessing.
Besides, FII portfolio rejigs typically happen at the beginning of a calendar year, and some unwinding of positions is quite possible as the calendar year ends, especially if FII views on certain emerging markets change.
Strategy 3: Get in seriously now
This is a strategy merely for investors who have insignificant (such as a Rs. 1,000 SIP running, or just Rs. 20,000-50,000 of lump sum investment in equity funds), or no holding in equity funds, or for those who have been staying in the sidelines stating ‘high market levels’.
The next few months could be among the few cherry picking opportunities you may have in the equity market – if one were to assume that the best of an economic revival is yet to start out in India.
In this case, however, whether you have surplus or not, given that you have not tested the equity market enough, we would urge you to start, or increase the value of your SIPs over longer periods of time. For instance, consider increasing a Rs. 1,000 SIP to Rs. 5,000 or more based on your monthly saving capacity.
If you have some surplus in hand now, consider ploughing an adequate first time investment (at least 5-6 times your monthly SIP), and continue with SIPs in the same fund.
If you do not have sufficient surplus in hand right away, and also have your tax-saving commitments to meet for the current financial year, consider investing over the next six months or so in tax-saving funds. That way, you would have met your tax needs, as well as ploughed money into equities at a good time.
In all this, what we are trying to suggest is to get you to invest more at a time when markets offer such an opportunity. This does not change the way you invest systematically, or otherwise, towards the goals you may already have planned for. These strategies can help you achieve those goals faster as you average more than your usual share in a down market.
FundsIndia’s Research team has, to the best of its ability, taken into account various factors – both quantitative measures and qualitative assessments, in an unbiased manner, while choosing the fund(s) mentioned above. However, they carry unknown risks and uncertainties linked to broad markets, as well as analysts’ expectations about future events. They should not, therefore, be the sole basis of investment decisions. To know how to read our weekly fund reviews, please click here.
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Madam
In your previous article, you have written that weekly SIP has given no superior Return than monthly SIP. Now you want us do STP weekly. why there is a shift in stand?
Hello venkat,
🙂 There is absolutely no change in stance. Over 3 or 5 year periods, we are convinced that weekly SIPs don’t make much of a difference. My call is a strategy that over the next 16-20 weeks, markets will be highly volatile and if you wish to average well, you can use a weekly STP now (only because this is likely going to be a downside market). Also, since we do not know how long this will last exactly, it was recommended. Even that is not going to make much of a difference if done monthly over 4-5 months. This is a short-term deployment strategy, if one has surplus. We think even post this, the monthly SIPs should continue and should suffice. thanks, Vidya
Hi Vidya..
Wonderful article.
Prashant Jain of HDFC once said “invest in any decent fund of well repute. The money will surely double in next 5 years”.. the logic being.. companies have ambitions and they will surely grow over a period of time. while it sounds very logical, there are so many tools/blogs available which compare various portfolios and tell you which ones the best. its mind boggling! Can you pls share something which tells how to choose a fund, how to analyze its performance..
Thanks again for this article and many others 🙂
Priyanka, thanks. Fundoo and morningstar are good places. We use data bases and do our own research from there. Broadly this is what we do: https://blog.fundsindia.com/blog/mutual-funds/how-we-choose-our-select-equity-funds/5956
Vidya
Hi Vidhya,
i havebeen investing from last 2years using SIP. One month back I had gain about 20% on overall investments. Today It is like -2%. Do I need to switch my invetment or continue with the same portfolio.
Hello Sir,
🙂 Stay calm and keep the SIPs going. A 2-year is short-term in the stock market to wipe returns…espcially given that much of your period was in an upmarket. These are the ways of the market Since you are doing SIPs nothing to worry. You will be averaging but the portfolio returns will look bad until a rally begins. Then the turnaround will be quick. I took a look at your portfolio. You hold good funds. Keep it going and do not look at your returns for sometime 🙂 I do the same with my portfolio 🙂 regards
Thanks Vidya for your quick reply. if i want to invest a lumpsum of 1 Lakh which funds do you recommend after asessing my portfolio.
Hello sir, I am raising a ticket in your name and replying to it. You will receive as a mail. In future, please use the help tab in your account and choose advisor appointment and we will get back to you. This will help us keep track of your queries and what we responded. The blog is more of a public forum. I shall write to you in a while. Vidya
I m an existing investor in FUNDSINDIA.COM, I have read the recent article in this blog, I want to invest lumsum of rs 50000, now I m little consused in which fund should I invest , or I should invest the amount in in two three fund separately,I have TATA BALANCED FUND, HDFC MID CAP OPPORTUNITIES FUND(sip), SBI MAGNUM MID CAP G, MIRAE ASSET INDIA OPPORTUNITIES FUND G(sip).
One of my friend told me to add FRANKLIN INDIA HIGH COS GROWTH FUND to my Portfolio, is it okay to add a new fund to my portfolio as I m alreay having four funds in my portfolio?
Hello Anup,
I have answered your query by raising a ticket. It will reach you by mail. In future, please send your query through advisor appointment feature in the help tab of your FundsIndia account. This will help us keep tab of your questions and our responses. The blog is more of a public discussion forum. thanks, Vidya
Hello Ms. Vidya Bala,
Good Day!
As always, a very insightful article.
Would appreciate if you could do an article on how to tackle the tax issues with MFs and equity investments.For instance, how do salaried tax payers pay their LTCG and STCG when the employer pays the taxes on salary.
Since many of the investors with your platform would have such concerns, such articles might be of immense help to them. May be, you have already addressed such issues. However, a repeat would be of value to several investors, considering the complexities in the IT space. This is a fertile topic that could lend itself to a short series.
Looking forward to your article/ series on the IT theme with particular reference to MFs & Equity.
Thank you
Best regards
Srinivasan R
Hello Sir, Thanks for the suggestion. We’ll explore it. Vidya
Hello Ms. Vidya Bala,
Good Day!
As always, a very insightful article.
Would appreciate if you could do an article on how to tackle the tax issues with MFs and equity investments.For instance, how do salaried tax payers pay their LTCG and STCG when the employer pays the taxes on salary.
Since many of the investors with your platform would have such concerns, such articles might be of immense help to them. May be, you have already addressed such issues. However, a repeat would be of value to several investors, considering the complexities in the IT space. This is a fertile topic that could lend itself to a short series.
Looking forward to your article/ series on the IT theme with particular reference to MFs & Equity.
Thank you
Best regards
Srinivasan R
Hello Sir, Thanks for the suggestion. We’ll explore it. Vidya
Dear Ms. Vidya,
What is your thoughts on switching funds over for its under performance? While, overall, it is suggested to stay invested in the market through Mutual Fund route, is it necessary / recommended to compare funds and its returns and shift accordingly? The reason I am asking is, while some funds underform its benchmark for a particular period and then picks-up, retail investors who try to get the best fund performance all the time by chasing its returns will be confused – wouldn’t they?
Please let me know.
Thanks,
V. Madhavan
Dear Ms. Vidya,
What is your thoughts on switching funds over for its under performance? While, overall, it is suggested to stay invested in the market through Mutual Fund route, is it necessary / recommended to compare funds and its returns and shift accordingly? The reason I am asking is, while some funds underform its benchmark for a particular period and then picks-up, retail investors who try to get the best fund performance all the time by chasing its returns will be confused – wouldn’t they?
Please let me know.
Thanks,
V. Madhavan
Please go through below mentioned portfolio and give your valuable suggestion
1. Axis LT Equity (G)
2. Reliance Tax Saver (G)
3. HDFC Top 200 (G)
4. HDFC Midcap opportunity (G)
5. Franklin Build India Plan (G)
6. Franklin India Pension Plan (G)
7. SBI Pharma Fund (G)
8. Reliance Pharma Fund (G)
Your prompt reply is awaited.
Thanks
Please go through below mentioned portfolio and give your valuable suggestion
1. Axis LT Equity (G)
2. Reliance Tax Saver (G)
3. HDFC Top 200 (G)
4. HDFC Midcap opportunity (G)
5. Franklin Build India Plan (G)
6. Franklin India Pension Plan (G)
7. SBI Pharma Fund (G)
8. Reliance Pharma Fund (G)
Your prompt reply is awaited.
Thanks
Should i continue my investment in aforementioned fund or there is need to change.
Pl. respond
Thanks
Vaibhav
Hello Vaibhav,
Advice on specific portfolios can be given if you are a FundsIndia investor. This blog is more of a discussion forum. We will be constrained from offering individual advice through this. If you have an activated FundsIndia account, I can ask one of our advisors to get in touch with you. You can also use the ‘advisor appointment’ feature on the help tab and log in your query any time and get us to write or talk to you. it is a free service for our investors.
thanks, Vidya
Please go through below mentioned portfolio and give your valuable suggestion
1. Axis LT Equity (G)
2. Reliance Tax Saver (G)
3. HDFC Top 200 (G)
4. HDFC Midcap opportunity (G)
5. Franklin Build India Plan (G)
6. Franklin India Pension Plan (G)
7. SBI Pharma Fund (G)
8. Reliance Pharma Fund (G)
Your prompt reply is awaited.
Thanks
Should i continue my investment in aforementioned fund or there is need to change.
Pl. respond
Thanks
Vaibhav
Hello Vaibhav,
Advice on specific portfolios can be given if you are a FundsIndia investor. This blog is more of a discussion forum. We will be constrained from offering individual advice through this. If you have an activated FundsIndia account, I can ask one of our advisors to get in touch with you. You can also use the ‘advisor appointment’ feature on the help tab and log in your query any time and get us to write or talk to you. it is a free service for our investors.
thanks, Vidya
Madam
In your previous article, you have written that weekly SIP has given no superior Return than monthly SIP. Now you want us do STP weekly. why there is a shift in stand?
Hello venkat,
🙂 There is absolutely no change in stance. Over 3 or 5 year periods, we are convinced that weekly SIPs don’t make much of a difference. My call is a strategy that over the next 16-20 weeks, markets will be highly volatile and if you wish to average well, you can use a weekly STP now (only because this is likely going to be a downside market). Also, since we do not know how long this will last exactly, it was recommended. Even that is not going to make much of a difference if done monthly over 4-5 months. This is a short-term deployment strategy, if one has surplus. We think even post this, the monthly SIPs should continue and should suffice. thanks, Vidya
Hi Vidya..
Wonderful article.
Prashant Jain of HDFC once said “invest in any decent fund of well repute. The money will surely double in next 5 years”.. the logic being.. companies have ambitions and they will surely grow over a period of time. while it sounds very logical, there are so many tools/blogs available which compare various portfolios and tell you which ones the best. its mind boggling! Can you pls share something which tells how to choose a fund, how to analyze its performance..
Thanks again for this article and many others 🙂
Priyanka, thanks. Fundoo and morningstar are good places. We use data bases and do our own research from there. Broadly this is what we do: https://blog.fundsindia.com/blog/mutual-funds/how-we-choose-our-select-equity-funds/5956
Vidya
Hi Vidhya,
i havebeen investing from last 2years using SIP. One month back I had gain about 20% on overall investments. Today It is like -2%. Do I need to switch my invetment or continue with the same portfolio.
Hello Sir,
🙂 Stay calm and keep the SIPs going. A 2-year is short-term in the stock market to wipe returns…espcially given that much of your period was in an upmarket. These are the ways of the market Since you are doing SIPs nothing to worry. You will be averaging but the portfolio returns will look bad until a rally begins. Then the turnaround will be quick. I took a look at your portfolio. You hold good funds. Keep it going and do not look at your returns for sometime 🙂 I do the same with my portfolio 🙂 regards
Thanks Vidya for your quick reply. if i want to invest a lumpsum of 1 Lakh which funds do you recommend after asessing my portfolio.
Hello sir, I am raising a ticket in your name and replying to it. You will receive as a mail. In future, please use the help tab in your account and choose advisor appointment and we will get back to you. This will help us keep track of your queries and what we responded. The blog is more of a public forum. I shall write to you in a while. Vidya
I m an existing investor in FUNDSINDIA.COM, I have read the recent article in this blog, I want to invest lumsum of rs 50000, now I m little consused in which fund should I invest , or I should invest the amount in in two three fund separately,I have TATA BALANCED FUND, HDFC MID CAP OPPORTUNITIES FUND(sip), SBI MAGNUM MID CAP G, MIRAE ASSET INDIA OPPORTUNITIES FUND G(sip).
One of my friend told me to add FRANKLIN INDIA HIGH COS GROWTH FUND to my Portfolio, is it okay to add a new fund to my portfolio as I m alreay having four funds in my portfolio?
Hello Anup,
I have answered your query by raising a ticket. It will reach you by mail. In future, please send your query through advisor appointment feature in the help tab of your FundsIndia account. This will help us keep tab of your questions and our responses. The blog is more of a public discussion forum. thanks, Vidya