Markets have been scaling new highs; while the outlook remains positive, the stance remains cautious. There is an evident shift in paradigm and investors are scouting for stocks that are trading at attractive valuations. Given that the market has run up significantly, investors are adopting a cautious approach. Here are the top five things that you need to keep in mind while staying invested in the equity markets –
DON’T TRY TO TIME THE MARKET
Although there is enough evidence to prove that market timing can help achieve better returns, it may not be easy for everyone to time the market. There is a need for extensive knowledge and experience to be able to time the market successfully. Retail investors who do not have the necessary expertise and access to necessary data to be able to time the market efficiently are advised to instead spend time in the market.
STAYING INVESTED OVER THE LONG HAUL
A common notion is that the longer you stay in the equity market, the better the average year-on-year returns will be.Staying invested in the long term does not require one to worry about the intermediate market upsides or downsides. For someone who stays invested over the long term, the possibility of attaining optimal returns can be above average. Also, academic evidence states that the risk reduces substantially when a long-time horizon is considered, primarily if the Systematic Investment Plan (SIP) route is used for investing.
SIP BENEFITS PLAY OUT OVER THE LONG HAUL
SIP refers to the investment route where you invest a fixed sum of money at regular intervals for a pre-determined time. You can initiate a SIP with as low as Rs. 500 or Rs. 100, depending on the fund you are investing in. It is important to remain invested throughout the market cycle, irrespective of ups or downs. If the SIP route is chosen for equity funds, then the number of units allotted would be lower during market upcycle than the number of units allotted during downcycle for the same quantum of money.
ALIGN INVESTMENTS WITH YOUR RISK APPETITE
Investing according to your risk appetite in equity funds can help you wade through the market cycle without having to re-align your portfolio as per market trends. Assessing your financial goals, corpus requirement, time horizon, and risk appetite should be of prime importance before initiating mutual fund investments. This way, the market levels should not be an obstacle for investing.
DIVERSIFY AND RULE!
Within mutual fund investments, choosing weakly correlated funds can help achieve stable returns over the long haul. For example, within equity mutual funds, large-cap funds tend to be insulated during market downturns, and midcap and small-cap funds tend to provide better returns during a momentum run (bull phase). Similarly, equity and gold have a history of being weakly correlated. Hence, it is advised that investors diversify adequately within their mutual fund portfolio.
Equity mutual fund investments are said to be inherently riskier than the rest of the investments (like debt).If you have a long-term outlook and are investing as per your financial goals, then you need not feel stressed over the market peaks or troughs. For a long-term investor, it is always a good time to invest!
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