5 simple investment rules to follow during market volatility

The BSE Sensex tanked 1,831.47 points, or 6.5 per cent, at 26283.09 during August following global markets sell-off and China economy slowdown fears.

Stocks in focus today
ICICI Bank stocks were trading 1.46 points down at Rs 259 (9.37 am) after it reported 25 per cent fall in net profit at Rs 2232.35 crore for the quarter ended June 30, 2016 against Rs 2976.16 crore in the corresponding quarter a year ago.

The BSE Sensex witnessed volatility in August 2015 following global markets sell-off and China economy slowdown fears. The BSE Sensex tanked 1,831.47 points, or 6.5 per cent, at 26,283.09 during August. The index was at 28,114.56 on July 31. NSE Nifty also tanked 6.5 per cent last month.

In the past seven-trading sessions(till Sept 1, 2015), Sensex has lost 1,669.63 points or over 6 per cent.

The devaluation of the Chinese currency has resulted in a sharp increase in volatility, according to Angel Broking.

The volatility has left the investors worried about their markets investments. Investor can avoid getting their fingers burnt in this global turmoil by following these 5 simple investment rules.

1. Firstly, investors should not try and time the markets, as volatility could lead to huge losses. Instead investors should use the recent correction in the markets as an opportunity to enter on a long term basis, ideally with a horizon of 2-3 years, which should give them favourable returns.

“We believe that equity should be the best asset class to create wealth over the coming years,” Vaibhav Agrawal, VP & head of research, Angel Broking said.

2. Diversification remains the key to tackle market volatility. For example, investors should not concentrate their portfolio in a few small cap stocks. They should diversify their holdings across large and small companies, as smaller companies tend to be more volatile. This will help increase the risk adjusted return for the investor.

3. Investors should also avoid leveraged positions as it could magnify losses and wipe out the invested principal.

4. A lot of investors get attracted to the lure of making quick money in the market and end up getting trapped in bad stocks. Investors should specifically avoid trading on unreliable tips and rather trade on the basis of sound advice based on in-depth research.

5. Lastly, investors should not panic when markets turn volatile and cash-out of quality stocks. They should remain confident and keep the bigger picture in mind. If the long term fundamentals of the investment remains intact, investors should not get nervous about a small correction in the short term.

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First published on: 02-09-2015 at 10:05 IST