Mr Sharma had been investing for several years for his daughter's higher education which was scheduled to start in 2020. He was quite confident that he would be able to pay his daughter's fees from his accumulated corpus. However, just when he needed the money, COVID-19 hit the world and the markets saw a rapid fall. This disheartened him, as the value of his investments fell sharply and he was left struggling to pay his daughter's fees.
Many of us have found ourselves in similar situations where even after years of discipline, we struggle at the last moment. Thus, here are a few things you should avoid.
Waiting for the last moment to exit from investments: Since equity investments are very volatile, staying invested till the moment you need the money can lead to negative surprises.
Once you start nearing your goal, start exiting from your equity investments and move your money to debt. Just like a staggered entry into the equity market, it is equally important to make a staggered exit from your investments through the SWP route.
Don't chase yields: While selecting a debt fund, most investors tend to opt for the ones that deliver higher yields without paying heed to the credit quality and liquidity of the portfolio.
While debt funds are safer than equity funds, one should remember that risks are associated with these funds as well. Thus, while choosing a debt fund, it is important to choose the one with high credit quality.
Rebalancing portfolio: Investors generally forget to rebalance their portfolios as their investments start growing.
It is important to rebalance your portfolio as per your desired asset allocation. For instance, you wish to keep the equity-debt ratio of your portfolio as 70:30. Now, in the bull-run, as equity rises, your equity portfolio will become 80 per cent of your total portfolio, while debt will be reduced to 20 per cent. Thus, you will have to sell a part of your equity gains and invest in debt.
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