The Sensex has been on a downward spiral since August 16 when it posted the biggest fall in four years (750 points or 4%), causing an estimated notional loss of about Rs2.2 lakh crore to investors, some of whom are expected to press the panic button and exit the market.
But where can they channel their investments?
Financial planners believe such investors should rethink their strategy. Indeed, they are advising their clients that it is actually a good time now to invest their money in mutual funds, and even stocks.
How do the available investment options compare and contrast against each other?
Here’s a ready-reckoner:
Kartik Jhaveri, CEO, Transcend Consulting, says investing in debt funds is also a good option, given that yields are high now. On Monday, the yields on the 10-year benchmark government bond rose to 9.24%, the highest level in five years. If the RBI does not roll back its recent liquidity tightening measures, yields are expected to shoot up further.
Depending on the time-frame, an investor can look at several papers such as liquid funds, short-term and ultra short-term funds, gilt funds andso on. Pandit says investors can also look at fixed maturity plans or FMPs where yields have gone up.
Investing in debt funds also gives investors the tax advantage. Unlike a fixed deposit where interest earned is taxed on the basis of the tax bracket applicable, in a debt fund, the returns are taxed at 10% without indexation and 20% with indexation as they come under long-term capital gains, if investors hold them for over a year.
Indexation takes inflation into account while calculating the cost of acquisition of an asset. Double indexation provides inflation benefits for two years even if investors hold the investment for a little over one year.
Amar Pandit, CEO, My Financial Advisor, says the markets are expected to go down further. For, the rupee continues to close at a fresh lifetime low with each passing day; there are fears of capital controls; there is speculation that the US Fed’s stimulus may well taper sooner than later. All these factors may push the markets down further.
A market crash always presents a good opportunity to buy, he says. So, investors should continue the regular investments via systematic investment plans (SIPs) in MFs but use these dips in the market to also make small one-time investments.
“Suppose, if I have Rs100 to invest, when the market crashes, I would use Rs20 to make a one-time investment to make use of these low levels even as I continue my SIPs,” says Pandit.
Financial planners such as Pandit advise that diversified large cap funds and balanced funds can be a good investment option on the equities front.
Cherry-picking stocks can prove a good investment option. Jhaveri says, “Valuations are attractive in certain pockets of the market and as a result one should look at buying stocks directly.”
However, a word of caution: investors should invest directly in stocks if they have the requisite knowledge or under the guidance of an expert professional.
The yellow metal has been gaining momentum and has managed to cross the Rs31,000 / 10 gram level. If the rupee falls further, or if the government imposes any further curbs on gold imports leading to likely supply constraints, then gold prices would inch up. However, financial planners advise against going overboard on gold. Maintaining 5-10% of one’s portfolio in gold should suffice, they say.
Advisors suggest that investors should ensure that the portfolio is diversified in a volatile scenario like the current situation, and should not go overboard with investing in any one asset class.