Your money: Strategies to survive and flourish during bouts of volatility

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Updated: May 15, 2015 1:01:56 PM

THE past few weeks have been quite jittery for equity investors, with the Sensex shedding nearly 3,000 points from the highs of 30,000 in March.

BSE sensex sensexThe 30-share Sensex, after touching a peak of 30,024 in March, has dropped close to 10%. Many would suggest that those who missed out on the earlier rally could cherry-pick stocks now, while others could accumalate further. (Reuters)

THE past few weeks have been quite jittery for equity investors, with the Sensex shedding nearly 3,000 points from the highs of 30,000 in March. Gains made in January 2015 have been wiped out in April and May. In such a volatile market, how do you go about your twin objectives of wealth creation and capital preservation?

Market behaviour

The 30-share Sensex, after touching a peak of 30,024 in March, has dropped close to 10%. Many would suggest that those who missed out on the earlier rally could cherry-pick stocks now, while others could accumalate further.

Typically, we do most of our shopping during the sale period. In fact, we tend to buy things that we may not even need. But does that principle apply to the equity market? Is the dip in stock prices over the last few days such an opportunity?

Market correction is an opportunity to move from the sidelines and enter in a staggered manner. Having said that, there is no ‘right’ method of investing. It’s true that that one should not catch a falling knife. But one cannot take into the maxim literally. As an investor, we have to look at the economic environment, too, before taking the next step.

It’s the time in the market that is important and not timing the market. Markets are volatile and uncertain. When the Swiss franc was unpegged earlier this year, it was widely stated that the Swiss economy will face a lot of trouble. But with the US dollar strengthening, the economy recovered. Similarly, in the Indian context, foreign capital saw huge outflows over the retrospective taxation issue.

Action plan

You need to consider the time-frame for your investment and act accordingly. There will always be ups and downs in the market. Proper capital allocation would reduce chances of error. Unseasonal rain and contrary views on monsoon have queered the inflation pitch. This could also affect RBI’s decision to cut interest rates further. These are elements that are not under your control.  So, if your time-frame is between three months and a year, go in for liquid mutual funds and short-term bond funds. You could also consider accrual and duration funds. However, if the time horizon is in excess of a year, one must allocate money to debt funds as well.

A lot has been said about the India growth story. Prices have run up ahead of earnings, and the results of state-owned banks have contributed to the market fall. Investment strategies must be devised with cash-flow needs in mind. Expect more volatility this year and act accordingly.

In sync with reality

* Consider the time-frame for your investment and act accordingly.There will always be ups and downs in the market
* Proper capital allocation would reduce chances of error
* If your time-frame is between three months and a year, go in for liquid mutual funds and short-term bond funds
* You could also consider accrual and duration funds
* If the time horizon is in excess of a year, allocate money to debt funds as well

The writer is founder & managing partner, BellWether Advisors LLP

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