‘Systematic investment plans are best suited for investors in volatile market’

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Equity markets look a bit risky at the moment. Given this, there are various strategies investors can look at, depending upon their risk levels and preferences. Rahul Jain of FE Investor spoke with Ankit Sancheti fund manager, Birla Sun Life Mutual Fund, on the various options and strategies. Excerpts:

What are the different ways an investor can initiate in a bear market like this and how should the portfolio allocation look like?

An investor's portfolio allocation should depend on factor like age, appetite for risk , income profile, short- or long-term financing requirements. Apart from investing in FDs or debt securities, allocation to equities should be done keeping long-term (5-8 years) objectives in mind. For investing in equity, individuals should have appropriate allocation to diversified schemes, mid-cap schemes and some theme-based schemes like infrastructure, contra, and dividends. Systematic investment plans are best suited for investors, especially in volatile market situations.

Do higher dividend-yield stocks make a good investment option? If so, them in which phase of the market and Why?

In the last 2-3 years, Indian markets have clearly favoured investors who have focused on investments in high- growth companies. However, with the slowdown in the US and other economies, we believe that the investor's focus will again shift to value-based investments, which means buying stocks trading at a low price-earnings (P/E) multiple having high dividend-yields. As and when the gap between bond-yields and dividend-yields starts reducing, investors will benefit by having higher allocations to dividend-yield stocks. The dividend yield of a stock also provides downside support to its stock price.

How much percentage of the portfolio, do you suggest, should be allocated to dividend-yield stocks in different market cycles?

It is difficult to suggest the exact allocation, which suits each individual as risk appetite varies across investor categories. However, according to expectation of growth in earnings, which was 30%-40% in last 2-3 years now moderating to around 15-17%, the investor's interest will return to dividend-yield stocks. With growth moderating and markets being very volatile, it will be good for investors to have around 10%-15% allocation to dividend-yield stocks.

In which of the sectors can an investor find contra and higher dividend-yield stocks?