The markets may be unpredictable, and debt instruments may not look so good now, but there's no reason to panic. Managed wisely, your portfolio could see you through.

By  Shilpa Nayak

Prudence before profit.'' Vinod remembered his old man telling him that on more than one occasion. How he wished he'd listened. In late 2000, convinced that equities were in for a run, he'd invested a good part of his money parked in fixed deposits in the market. The move had made sense then: interest rates were down and looked set to fall further. Only now, with his equity portfolio worth a little over half of what it had been worth in December, things didn't look too good.

There are many Vinods out there, and they have to work out how best they can reshuffle (and retrieve) their investments. Should they exit equities? Should they pick stocks while they're going cheap? Should they focus exclusively on debt? That's a decision-process best left to them, but we can offer some tips on how the typical small investor can prevent his investment portfolio from tanking.

Don't Panic

If this short composition were a book, and had a cover (most books do), these words would be on it, very much in the way that they're on the cover of The Hitchhiker's Guide To The Galaxy-in large red letters. It's hard not to panic when the stock market index is taking a dive, but typically, by the time small investors begin experiencing a burning desire to get out, the market bottoms out. Wait things out. ''What's happening today is liquidity-play, rather than fundamental play,'' says Abhay Aima, Head (Advisory Services), HDFC Bank. ''There's no reason for the small investor to panic. In fact, if an investor has surplus money, he should go ahead and buy.'' There's merit in that logic: if everyone is postponing picking stocks, shouldn't you be doing it now? If you don't want to do that, though, stay put. That may prove to be the best move.

Redefine Your Goals

Go through your original investment logic. Assess the immediacy of your financial requirements, and provide for a buffer (for things like medical emergencies). It may be a good idea to cut back on unnecessary expenditure. That done, take a few deep breaths and go through your investment portfolio with a fine tooth-comb.

Review Your Risk Profile

The no-risk, high-return days are gone for good. As are the low-risk, modest -return ones. ''Investors have to start getting used to running more risk for higher returns,'' says Avdhoot Deshpande, Vice-President, Centrum Finance. Risk-avoidance isn't an option any more. And with interest rates taking a one-way ticket to the bottom of the hill, debt-instruments and fixed income schemes offered by mutual funds are no longer as attractive as they once were. That's bad news for investors who stuck to the middle path in the past. If there's a point from where your decision to shuffle your investment portfolio originates, it is this.

Track Your Investments

It's surprising how investors who track their equity-investments through every minute of the day, forget all about their mutual fund investments. The mere act of investing in a mutual fund, doesn't, as some people believe, isolate you from stock market cycles. The easiest way to prevent your investment portfolio from tanking is to monitor the performance of the mutual fund schemes you've chosen. That's a simple enough task: most schemes send out mailers on their performance.

Diversify Your Portfolio

It's difficult to resist the temptation to put one's little all into a winning scrip (or one that everyone expects to win). It's easy to dismiss advice that exhorts investors to diversify as a cliché. Still, no one's ever suffered for spreading his investments across debt, equity, and other liquid assets. In an ideal world, the proportion invested in each would be a function of the investor's risk-profile. And yes, it may be a good idea to diversify allocation within each: overexposure to one stock, for instance, could be dangerous.

Shuffle Your Investments With Age

Your age, that is, not the investments'. Moving to debt with age is standard investment-advisory prescription and there's nothing to suggest it doesn't work. Real estate isn't really an investment from the small investor's perspective, so we won't speak about it. And equities, popular wisdom would suggest, are for the not-so-old. ''A middle-aged individual can invest up to 30 per cent of his investible surplus in equities, (preferably) through a growth fund, '' explains Paras Adenwala, a fund manager with Birla Mutual Fund. ''Equities outperform all other investment options over a period of three years.''

Understand The Tax Angle

If you don't have a chartered accountant you can turn to, find one soon. There may be some tax-related issues to shuffling your investment portfolio or liquidating part of it. For instance, systemic withdrawal plans on offer from debt schemes allow investors to withdraw fixed amounts at fixed intervals, but these are taxed for capital gains.

Plan For Emergencies

What use is a great investment strategy, if it doesn't help you out in a crisis. Not all medical expenses are covered by insurance; besides, you have to pay first and then get the amount refunded from the insurer. Liquid stock-holdings won't help too much: you're certain to be reluctant to sell Infosys at Rs 4,000 if you've picked it up at Rs 7,000, and expect it to rise up to Rs 8,000 in a year. The perfect contingency fund is a breakable cluster deposit at a bank. It won't earn you too much, but it's a reassuring feeling knowing the money is there if you need it.

Invest Regularly

The best investment strategies are long-term. They hold the promise of reasonable return against a modest regular contribution. In the case of debt, you can do this yourself, albeit with a certain level of discipline, by putting away a sum of money every month. If it's equity, you can do this through a systematic investment option (most mutual funds have one). Either way, if you invest regularly, and with an eye on the long-term, chances are your investment portfolio won't tank.

Issue Contents  Write to us   Subscription   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY  |  TEENS TODAY  
THE NEWSPAPER TODAY | MUSIC TODAY | ART TODAY | CARE TODAY

© Living Media India Ltd