The Indian equity markets have gone nowhere for a long period of time now and people are losing patience…wait a minute are they?
The numbers are impressive new SIPs every month. The IFA community may be shrinking but the online aggregators and banks are more than compensating for the dropping out of the IFA. There are 3 strategies which a retail investor uses and this hurts him..let us look at them:
- Moving to cash: suddenly you find an article in the mainstream media saying ‘even a SIP in Hdfc Top 200 has actually given you a negative return of 4% over the past one year’ – this scares people for sure. They forget to tell you that there are 230 funds in that category and the best performing fund gave you 9% tax free. Or that a SIP in Icici Pru Value Discovery fund gave you 8% during this period. Fairly obviously the media chooses the headline first and then searches for the story. This scares people who will suddenly pull money out of equities and put it in bank deposits of liquid funds.
2. Moving slowly into equity: A person wakes up with about Rs. 10Lakhs in bank fixed deposits, savings account, etc. and decides that he should be about 50% in equities and 50% in debt. Having decided to invest Rs. 500,000 in equities he goes to a half baked IFA who is actually afraid of equities, but does it for a living. He suggests a SIP with a ‘big’ amount of Rs. 10,000 per month in a balanced fund called ‘Hdfc Prudence’ so far so good. Now Prudence is a high risk ‘balanced’ fund with an equity bias, but technically it is a fund with about 35% in debt. So at the end of ONE FULL YEAR…he has invested Rs. 78000 in equities out of his Rs. 10,00,000!! this is a far cry from his half – half asset allocation that he wanted. In such cases, the SIP should have been for Rs. 50k for 12 months..that would have at least taken him to his intended allocation within one year. Now if the market did go up say, 25% in this period…the man just lost out completely on the upside. So get to your asset allocation ASAP.
3. Shifting money to ‘defensive’ sectors: this is something for the professionals to do. Moving from FMCG to infra or from construction companies to banking sounds nice, but not something that the retail investor can do well. Look at Prashant Jain he moved out of FMCG and into infra stocks. Made a lot of sense to move from a stock at 60 pe to a stock at a pe of 10..however there has been a real hard hit on the performance of his top funds. Sure in 2016 he could look like a hero and in 2017 he could look like a genius. However, if you do not have the proper systems, processes, and ability to stand up to that volatility, you are better off doing a sip in a fund. Maybe an I pru discovery or a Motilal Oswal or a PPFAs. Or Franklin India blue chip. Investing in direct equities requires some serious learning first. Asset allocation is among the top things that you will learn…
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