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Financial planners are borrowing the phraseology of fashion designers, with an equities rout globally making it easier to spot long-term stock winners. So, they are advising investors to take advantage of the 21% Nifty decline by spring-cleaning portfolios, dumping underperforming funds, and buying more stocks.
Instead of rushing to the safety of competing asset classes such as gold, or bonds or property, they are advising investors to increase their tactical allocation to equity by 10%. Investors are also being told not to jump from equity to other asset classes on the basis of past returns.
“Given the steep fall in equity prices, it is natural that investors will want to get out of equity and jump to safer asset classes like gold and debt,” says Vidya Bala, founder, Primeinvestor.in.
Bala cautions investors against shifting out as domestic gold prices have already run up 19% over the last three months and 38% over the last one year. Yields on the 10-year government securities are at a 10-year low at 6.1% and investors have already earned an average 14% from long-term gilt funds, leaving little room for capital appreciation from these instruments.
She suggests investors should stick to equity funds and use this opportunity to clean up their portfolios.
A sharp polarisation in the equity markets has led to several funds underperforming their benchmark indices over the last three years. This fall gives investors an opportunity to exit such funds and move to better-performing funds in the same category.
Investors contributing to systematic investment plans (SIPs) every month should continue these as doing so gives them the benefit of rupee cost averaging.
“Over the long term, SIPs give you the benefit of compounding.
They also give you the benefit of rupee cost averaging as you buy more units due to the fall in markets,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services.
Financial planners point out that many investors who allocate money based on valuation parameters like price-to-earnings or price-to-book and were underweight equities in their portfolio could use this fall to increase allocation.
“Investors who had just a 50% allocation to equities could increase it to 60% taking advantage of the sharp fall in equity prices,” says S Shankar, certified financial planner, Credo Capital. Shankar suggests investors allocate to multicap funds that give the discretion to a fund manager to invest in a mix of large-, mid- and smallcap stocks.
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