BUDGET SPECIAL Avenues
The other factor that is bring in several
new investors into the equity fold is the
steady fall in interest rates, especially on
guaranteed return instruments.
Due credit should also be given to
the Mutual Fund industry which has
played an active part with the mandatory
education initiatives for small retail
investors. The impact of rising inflows
through mutual funds is evidence of
this initiative working. Investors pumped
in a record Rs 1.3 lakh crore in equity
mutual funds in 2017, which was ably
aided by the lacklustre performance of
other popular investment avenues like
gold and real estate. The strong inflows
pushed the asset base of equity MFs to
Rs 7.7 lakh crore last year from Rs 4.7
lakh crore in 2016 (See: Net inflows in
Mutual Funds). The continuous inflow by
retail investors can be attributed to the
systematic investment plans (SIPs) and
positive returns from equity funds.tempering returns
Sure, the stock market is booming. But
as a retail investor, what’s in it for you?
FIIs and other institutional buyers have
size and liquidity criteria for their picks.
But, given the way things have moved
in the markets, several expert stock
pickers and fund managers have started
raising their concerns. Only a few good
companies still have the room to grow,
given the scale of corporate debt, quality
among several large stocks and the
price at which they are available now,
makes stock picking a tough job. For the
late entrants into the market, the growth
experienced by those before them
seems to be the new normal, which is
not exactly the case in reality. So, where
does it leave them? They need to check
on their expectations from the markets.
Now is the time to bring the
conversation about risk and volatility back
on the discussion, especially now that the
market is expensive, even if it’s not in the
bubble territory. Moreover, each year, the
stock markets do rally up just before thebudget before finding its feet depending
on the Budget outcomes, which could
make them either go up or down. One
class of mutual funds that have found
favour among first time investors and
conservatives are the dynamically
managed balanced funds, wherein the
equity and debt allocations are frequently
rebalanced to follow the classic asset
allocation model of investing.
The other factor that first time
investors should keep in mind is that
stock market movements are not linear
and unidirectional. There is always
a possibility of downside, and more
so because we are no more into a
moderately prices or cheap market level
anymore. Considering the fact those
significant gains of recent years will come
from the right mid- and small-cap stocks
that one identifies and invests in. Then
there are the several stock offerings even
as several companies prepare to go
public. But, as much as wealth creation
is a goal for everyone, wealth protection
is also necessary in the times to come.Managing risks
Asset allocation is important and
rebalancing the same is equallyimportant. You should maintain the asset
allocation suited to your temperament
and maintain it with an annual or half-
yearly rebalancing. Likewise, one should
diversify their investment portfolio with
several investment options like equities,
bonds, gold and mutual funds. You can
opt for more than one of these financial
instruments to diversify your portfolio.
Further diversification can be achieved
by including financial products offered by
different companies belonging to distinct
sectors. This protects the overall returns
from the investments from market
fluctuations and if a specific sector or
company moves in an unfavourable way,
the other investments in the portfolio can
achieve the balance within the investors’
portfolios.
Another important trait you need to
develop is patience. Several investors
make quick and hasty decisions with
every small movement in the price of their
investments. It is important to determine
your financial objectives before you set
about investing and focus on both short-
term as well as long-term objectives to
enjoy the maximum returns on your
investments. According to Martin Mayer,
author of Nightmare on Wall Street –
Salomon Brothers and the Corruption of
the Marketplace; “The one lesson history
teaches in the financial markets is that
there will come a day unlike any other
day. At this point, the participants would
like to say, ‘all bets are off ’, but in fact,
the bets have been placed and cannot
be changed.”
What next? Caution should be the
watchword and you will have to look at
companies with visionary managements,
robust business models, strong pricing
power and good financials.the Indian
investing story
is a good one.
But you need to
watch out for
opportunities in
the plot.
the stock market is risky and smart
investors take advantage of risk
management strategies to mitigate it.
68 12 FEBRUaRy 2018