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Action plan for all types of investors

Are you a mutual fund investor who is worried that the market has run up? Here is what you can do.

Action plan for all types of investors

The new investor: If you are starting now, don't be afraid that the market may tumble. There is no good or bad time to start investing. Do opt for SIPs and keep a long-term horizon. If the market does fall, take that as an opportunity to average your investment cost. You can start investing in an aggressive hybrid fund in place of a pure equity fund. These funds invest 20-35 per cent in debt and hence cushion a market fall. The icing on the cake: they also provide automatic rebalancing.

The experienced investor: You have seen the magic of SIPs. Though these may seem to be unusual times, your response should be usual: keep investing. Though you may be tempted to think of innovative ways to lock your returns and avoid pain, do remember that the most effective thing you can do is continue investing.

Nearing the goal: If you are nearing a long-term goal, start making a systematic exit. Don't be lured by the bull run. If the market changes course, your goal may be compromised. You can move your corpus to good short-duration debt funds to benefit from higher returns as compared to a plain bank account if you are a couple of years away from your goal.

Equity in retirement: If you are a retiree who wants to invest part of his corpus in equity to combat inflation, do ensure that you do so only with your long-term money and after you have secured your income needs for the next five years. Invest only through SIPs.

The lump-sum investor: If you want to invest a lump sum in equity, you should avoid doing so, especially in times like the present ones. If the market fall from here, you won't be able to average your investment cost and you may have to wait longer before you even break even. Just park your lump sum in a good liquid/short-duration debt fund and set up an STP from it to your equity fund. Invest it over the next six to 18 months, depending on the size of the lump sum.

The sceptic: If you finding it difficult to invest, given the elevated market levels, do consider that if the markets keep rallying, that may result in lost opportunity. Also, a rise in the Sensex/Nifty doesn't mean that all stocks in the broader market have become expensive. Indices are weighted and can move up or down when even a majority of their underlying stocks are not contributing. It's your fund manager's job to find the best opportunities for you. So, don't read too much into index levels. Invest through SIPs. That will help you gain confidence.

The adrenaline junkie: If you quit the market in March last year and are now getting excited and want to invest large sums to ride the bull run, stop immediately. That's just the wrong response. This sort of behaviour is doomed to be painful in the long run. First assess your goals and decide on the amounts to be invested. Seek a financial advisor's help if needed. Invest in equity for your goals that are more than five years away. Invest only through SIPs and continue investing through all phases. If the equity volatility gets the better of you, start with aggressive hybrid funds.

The tactical investor: If you want to make a tactical short-term bet on equities or a sector/theme, be aware of the inherent risks. Short-termism is often counterproductive in the market. So is market timing, which is almost impossible to profit from consistently in the long run. At Value Research, we don't advocate making such bets. Invest in equity only for the long term.