The key reason behind volatility is the rising interest rates. Central bankers have decided to use their age-old tool of rising interest rates to contain inflation. While volatility may go away, investors should not lose sight of their enemy number one – inflation. Stocks could help you to beat inflation in the long term provided you select the right stocks. Long-term compounding works in your favour to generate inflation-beating returns and the same is evident in the case of well-managed portfolios. According to Value Research, flexi-cap funds have given 13.54% returns over a 10-year period ending on June 17, 2022.
Falling markets mean stocks are available at attractive valuations. It is akin to going shopping to a place where there is a big sale. If you like discounts, then Dalal Street is the place you should go shopping now. Lower price to earnings ratio means availability of companies at attractive prices. Also discounts to fair value differ from one stock to another and the best bargains may be available in stocks that are not present in leading indices. A fund manager can figure out best deals in the stock market and advise you accordingly .
Scheme portfolios are designed in line with clearly defined asset allocation norms set by the financial market regulator. This ensures that you get what you want. You can select the right schemes in line with your long-term financial goals and your risk profile. For example, an investor with a ten-year view and ample risk-taking ability may consider some allocation to a small-cap fund. Another investor who has a five-year view and wants to take exposure to established names in the stock market may want to restrict to a large-cap fund.
Many times, individual investors are willing to take efforts and practice the art of selecting well-placed companies for investments. In this manner, they follow a method of investing. Some are good at a few sectors and have developed a style of investing – growth or value or quantitative. But each stock picking approach has its advantages and limitations. And one cannot master all. In such a case, diversification across various factors of investing, as they are termed in industry parlance- value, growth, quality, momentum- can be done using equity funds. It not only improves your portfolio returns over a period of time but also brings down the risk.
Rupee cost averaging
The biggest advantage of investing in equity funds is to own a portfolio of stocks with a small amount. One could invest across category portfolios – month on month or at regular intervals of choice maybe daily, weekly, monthly. When markets are falling, you get more units and when markets are going up, you get less units. Over a long period of time, when markets go up, your average cost of purchase of all units may be well below the then prevailing price (NAV) of the unit providing you reasonable gains.
Staggered investments through SIP help us reduce risks associated with time. You should not invest all your money when the market is at a historical low.
Views are personal: The author – Anup Bhaiya is the founder of Money Honey Financial Services Pvt Ltd
Disclaimer: The views expressed are of the author and are personal. TAMPL may or may not subscribe to the same. The views expressed in this article / video are in no way trying to predict the markets or to time them. The views expressed are for information purposes only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any manner for the consequences of such action taken by you. There are no guaranteed or assured returns under any of the schemes of Tata mutual Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.