By Rachit Chawla
If you are looking to build a corpus in these tumultuous times, you need to focus on two main things – strategy (objective) and patience. We often see that people invest in mutual funds for building a retirement corpus, but once the market shows signs of taking a u-turn, they stop investing and prefer to bail out – even taking losses in the process.
It is very important to stay patient – especially if you’re in it for the long haul. The market serves as a barometer for the Indian economy; if you believe in the growth story of the Indian economy, you should also have some faith in the market.
While you should refrain from investing in companies that are prone to bankruptcy, there are many safe investment options that you can explore. You can invest in the top 50 companies of India that comprise Nifty50. These top 50 companies will never shut down, so you don’t have to worry about losing in the long run. Also, the best thing about Nifty50 is that if a company is not performing well, it steps down and the 51st company takes its place – thereby maintaining the integrity of the Nifty50 index. Whenever you’re in for the long run, you should stay patient as the market would eventually bounce back after the crisis subsides. However, if you’re in it for the short run, then you’d be better off cutting your losses.
Perfect wealth strategy
If we talk about wealth strategy, you can divide your corpus in three or four ways. The first one that we should discuss is the high-risk path.
If you liked the product of a listed company and you’re seeing the growth potential, you can buy the stocks of that company. However, you should make sure that the company doesn’t have too much debt in its books. Besides poor governance, failure to repay debt is the leading cause for the sudden closure of companies.
Also, you shouldn’t invest more than 20% to 30% of your investment capital in high-risk stocks. The other 30% you can invest in medium risk stocks, which includes mutual funds. You can invest in equities via mutual funds as well as in small caps as they’re low-risk stocks. Add capital periodically whenever you see your portfolio in red.
The lowest risk investment option is the Nifty index. In the long-term, it is only going to grow, as its growth is directly influenced by the growth of the top 50 companies of India – which is a certainty.
The quartile ranking shows how your scheme has performed quarter on quarter in comparison to your peers. If the scheme you’ve opted for is going below the third quartile in a couple of consecutive quarters, it might be time for you to exit the scheme.
The risk to return ratio is a strong indicator of whether your scheme is working the way you want it or not. By doing thorough ratio analysis, you will be able to get a clearer picture of how your scheme is performing.
Total expense ratio
Since fund management and distribution-related expenses are borne by the scheme, a higher expense ratio would result in lower returns. Therefore, it is something that should never be neglected while evaluating the performance of a scheme.
The writer is founder & CEO, Finway FSC