Use the fall to buy for the long term

Sep 23 2011, 09:15 IST
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SummaryThe answer, however, is to keep your calm and proceed with your investments as planned.

A 704 point or 4.1 per cent fall in Sensex in a single trading session is enough to create anxiety among investors and make them think whether they should hold on to their investments, sell out or enter to make quick money in the high volatile situation. The answer, however, is to keep your calm and proceed with your investments as planned.

Do not venture into markets for short-term gains

Several investors may be tempted to take advantage of the intraday volatility, where stocks move between 5-7 per cent in a single day, and venture into the markets for short-term gains. However, with the high level of uncertainty around and the likely impact of the gloomy global economic scenario on the markets, it would be wise to desist from such temptation.

Use the fall to accumulate for the long term

With the Indian equity markets turning attractive on the valuation front, it makes sense to invest for the long-term. Rather then pressing the panic button to sell, investors should utilise the fall to consolidate their holding into mutual funds or strong fundamental stocks. Do not adopt lumpsum investment as the ongoing volatility will offer better entering opportunity and hence adopt the staggered approach.

Do not stop systematic investment plans

When the markets fall there is no need to stop your systematic monthly investments in equities or mutual funds or to even sell your holding. When the NAV’s or share prices fall, you tend to accumulate more units for the same amount of investment and thus when the market bounces back, you are likely to gain higher returns.

Do not change asset allocation

While fixed deposits are offering over 9 per cent assured returns, investors should not look to divert their funds meant for equity investment into debt products. The funds can be parked into liquid funds for a short time, till stability returns, but should move back to equity which has the potential to outperform debt products and generate above-inflation return in the long run.

Do not buy brokers’ ‘buy tips’

Brokerage tips to enter into momentum stocks or smaller companies for multiple returns should be avoided. The current challenging market environment may test several companies on their financial strength and their sustainability and the ones that have edge over others would come out stronger. Do not fall into tip-based investing and stick to large-cap fundamentally strong companies.

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