Mutual Fund Investor? Watch Out For These 5 Mistakes Right Now
The equity markets have turned negative in the wake of the recent fall in Adani group stocks, making investors nervous. In such a complex situation, it’s very easy to end up making regrettable investment decisions. Here are five of them to watch out for right now.
Panic Redeeming
With the NIFTY nosediving by more than 1000 points over the past month or so, panic may be setting in. You may be tempted to succumb to all the noise and exit from equities altogether. However, this would be a bad idea, as it would be akin to selling out cheap. Markets are still reasonably valued, and exiting should be the last thing on your mind. It’s critical to keep accumulating equities for your long term goals in a systematic and disciplined manner for your long term goals, instead of getting too worried about short term fluctuations, as the overall India growth story continues to remain very strong.
Avoiding Small Caps
It’s all right to be wary of small cap funds, as they tend to be a whole lot riskier and more volatile in nature than flexi cap or large cap funds. Having said that, small caps remain attractive at current valuations – in fact, the CNX Small Cap index which was hovering around the 12,000 mark this time last year is barely at around the 9,000 mark these days, making them an attractive bet for long term investors with an understanding of risks. It would be wise to make a judicious and measured allocation to small cap funds at these valuations, with your percentage allocation being contingent upon your individual goals. Remember to stagger even lump sums trough 2-3 month, weekly STP’s instead of trying to bottom fish and time the market for the “best” entry point.
Stopping your SIP’s
SIP (Systematic Investment Plan) returns that were averaging 12-14 per cent CAGR have suddenly become flat or even slipped into red, but stopping them now would be an unwise move. Remember, SIP tranches that get debited from your bank account at depressed valuations, are the ones that deliver maximum wealth creation when the cycle turns around – which is an inevitability. Stopping and starting your SIP’s time and again will deplete from the rupee cost averaging effect which empowers them to deliver superior risk adjusted returns over the long term. If you started your SIP’s for long term goals, you should not really be very troubled by these fluctuations and just continue investing resolutely.
Investing Lump Sums instead of staggering it in
If there’s one thing you should know about equity markets, it’s that they are seldom rational. They oscillate between extreme pessimism and irrational exuberance, and there’s no saying exactly when a bearish market will stop falling, however strong fundamental indicators are. It would be a wise move to stagger your equity investments into the market using STP’s (Systematic Transfer Plans) from liquid funds, instead of taking a bet on a certain lump sum level. A weekly-mode STP for a 3-5 month time frame from today should do the trick.
