Tweak your traditional investment strategies
Pune resident Akash Awasthi started working earlier this year. He has been saving for six months to start investing. He also used this time to do some home work on the basics of investing. But, Awasthi was a little lost when the financial advisoer he approached offered advice different from what he had learnt in the past months.
For instance, Awasthi wanted to invest in equity-diversified funds for the “long term", which according to him was two to three years, to accumulate wealth. The financial advisor, however, discouraged him, showing the market data for the past two-three years when equities’ gains were muted.
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The advisor, instead, told Awasthi to invest for a longer period, say four-five years. Reason: Markets are not expected to make any substantial gain for the next six-eight months. This no-gain period could even extend to a longer time. So, it will take a longer-than-usual time before investors start getting returns on their equity investments.
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Financial sector experts also agree that traditional investment strategies should be altered in line with the changes taking place in financial markets.
“Rather than holding stocks or funds for three or more years, we are advising investors to focus on target returns. This will help you achieve your goals within a timeline you have in mind," says Anshu Kapoor, head, private wealth division at Edelweiss Wealth Advisory and Investment Services:
In the past three years, the benchmark indices have made around two per cent gains (Source: Value Research, as on June 5). As the situation is likely to persist for a few more months, many investors are changing their investment strategy, they say.
Sudeep Bandyopadhyay, managing director and chief executive officer (CEO) of Destimoney Securities feels new investors should not jump into equities now. “They should rather wait for the markets to start moving up. We expect markets to correct some more before they move up," he says.
Traditionally, individuals would be advised to buy on dips. Bandyopadhyay agrees, but says it is better to wait a little and gain thereon, than buy now and lose over the next year.
“But if you still wish to take a plunge, invest in small quantities. In this market condition, you could consider alternative investment avenues like commodities and international funds. Some are advising sticking to only debt products till there is clarity on market movement," he adds. Again, a non-traditional view.
Adds Pradeep Dokania, managing director and chairman of Merrill Lynch Wealth Management, “The investment advises today are typically depending on the market cycles we face. Advises have also become target-oriented now than before. A situation like this arises every few years, and advisers have to tweak their suggestions."
Defensive stocks — pharmaceuticals, fast moving consumer goods (FMCG) and information technology (IT) —are being advised aggressively, to the extent that it is suggested to look for large cap or equity-diversified funds with relatively higher exposure in defensives.
For instance, equity-diversified funds like UTI Opportunities hold 14 per cent in FMCG stocks, while Principal Large Cap Fund has over 12 per cent each in healthcare and IT stocks. Besides, DSP BlackRock Opportunities Fund has over 10 and 11 per cent in FMCG and IT stocks, respectively (Source: Value Research, as on April 30, 2012). Yes, defensives are meant for uncertain markets. These sectors have consistently shown stable, if not spectacular, earnings in both good and bad times. But, individual investors are traditionally not advised to go heavy on particular sectors.
Even though it’s a good time to invest in these sectors, individuals do not analyse these details before investing. For instance, many don’t even know how to look for the sectors mutual funds have exposure in. Akshay Gupta, CEO of Peerless Mutual Fund, says, “Most funds today have about 30 to 35 per cent (total) invested in defensive sectors and help you hedge your investments, in a way."
Lastly, some advisers are suggesting real estate, which is traditionally termed as “risky" and not advised to individuals. Experts say markets in the past two-three years have only reiterated the importance of diversification and asset allocation. From that perspective, it makes sense to have 5-10 per cent exposure in realty.