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Invest with 3-5 years time horizon
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Inflation already above 12% mark and expected to go higher before it cools down. There is no asset class in sight at the moment which can give returns to beat the inflation. If you put your money in saving instruments like bank fixed deposits, you are actully loosing money.
The share market is in the grip of bears since the beginning of 2008. No one has a clear picture about where the stock market is headed. Debt is definitely not the solution with double digit inflation. Gold has been bearish as well. Do you think you have run out of options? As a matter of fact the equity market is not a bad option at all.
But when it comes to equity, think long is the golden thumb rule. You have to stay invested for 3-5 years to earn some decent returns on your capital, the experts say. What is the best strategy for investing in such a market? What should be the investment time horizon of an investor?
Expert speak
Shrenik Shah, associate vice-president, Premier Banking, HSBC: Right now the market is sentiment driven. You should not go long or short on any particular stock. So, if you take new positions, look at derivatives or cash. In the current scenario, it’s better to stay off products like sectoral funds, thematic funds or opportunities funds.
For example, the hardening of interest rates has impacted the banking and the real estate sector. Similarly, crude refineries’ stocks look edgy with the volatility in crude oil prices. So it’s better the investors stay away from these sectors now till the smoke settles down. “It’s better you avoid structured products offered by multiple issuers as there is huge credit concern in the US and other developed economies,” Mr Shah adds.
B Gopkumar, vice-president and head, financial planning group, Kotak Securities: Around two years ago, it made financial sense to play around with your money as the Sensex was surging to new levels. “Now, you should stick to building your core portfolio with a conservative asset allocation strategy.
That would largely comprise diversified equity funds with large assets under management (AUM) from renowned asset management companies (AMCs). You should invest in a staggered manner over the next six months,” he says. Although the equity market looks very choppy, it’s still viable for long-term investments.
If you compare equity and other asset classes for a short-term period of 1-2 years, the former will underperform than the latter. You should compare these returns over a three-year period to get a realistic picture, Mr Gopkumar adds. Most experts say that this a good time to invest as the Sensex is still significantly lower than peak levels of 21,000 in January.
This may be a good time to buy large cap stocks as scrips are trading at affordable prices. Also, these stocks have the capacity to bounce back faster than their mid cap and small cap counterparts when the market recovers. But if you are not very market-savvy then it makes sense for you to opt for the mutual fund route.
“Investing directly in the stock market is good. You should look at splitting your money among 5-6 blue chip companies. If you don’t have the expertise, then a diversified equity fund will be a safe bet,” says Kartik Jhaveri, director Transcend India and a certified financial planner.
According to most experts the best time to buy stocks is when the markets are down. Do not try to time the stock market, although the temptation to buy shares at the bottom is very lucrative and tempting, but experts say no one can time the market ever. IT will be a good idea to start allocating funds and slowly b |
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