1. It is easy to get swayed by short-term strong returns in the market, especially in select setors, but their long-term sustenance is rare.
2. Such a "concentration risk" strategy can be highly risky over the long run.
3. Also, "timing" the purchase and redemption in mutual funds is not everyone's cup of tea and could lead to disastrous results.
4. Taking higher risks for higher returns is a very specialized job which should be done by seasoned fund managers.
5. Systematically investing in a few well-diversified funds is the best strategy to build long-term wealth.
6. When investment decisions are made by following what others are doing, that too reflects the personality of the investor.
7. Although almost every investor knows Warren Buffet’s quote that he always sold when others bought and bought when others sold, rarely investors follow the same strategy with their personal investments.
8. And this herd mentality is seen across asset classes — be it gold, equity, debt or real estate.
9. It is also seen that rather than trying to tell investors that they should make investment decisions based on logic, those who are selling investment products often sell the ones which are in vogue.
10. It’s like a doctor who will not give an injection just because the patient doesn’t like it or doesn't want it, although it could have serious long-term repercussions.
11. Like a menu card in a restaurant is for us to "choose" from, in investing business too, the approach has to be to select what is ‘right’ for you, as someone else's "right" may actually be "wrong" for you.
12. This normally happens as nobody is sure how to act, people take cues from others, and do whatever they are doing.
13. So, if most people are redeeming their units after a sustained market outflow for a month, they will consider it the best course of action and do the same, little realizing that mutual funds work best in the long term.
14. Conduct your own research and base your decisions on facts, your financial goals, as well as your current situation, not just on others' decisions.
15. You should not stop Systematic Investment Plan (SIP) investments of your well-diversified funds in a falling market, as the process of SIP is based on the concept of long-term rupee-cost averaging, under which an investor would buy more units when prices are low and buy less of when prices are higher.
16. It also addresses the volatility factor in prices, when units are bought over several months.
17. So, naturally if you stop your SIPs when the market is falling, you lose the chance to buy more in your SIP.
18. In other words, you would forego the chance to add more units when their NAVs are falling if you stop SIP.
19. In fact, if you continue your SIP in a weakening market, it could even turn out to be a blessing in disguise in the long run.
20. In case you're holding sectoral funds, or lowly ranked funds, this is the right time to redeem or weed them out, preferably in a tax-efficient manner, put the proceeds into a liquid fund and then start SIP in a Balanced fund completing the investment process in a year.
21. This will also reduce your short-term anxiety, but holding more than 6-8 months expenses in a fixed income product purely due to volatility, is not conducive for wealth creation.
22. Avoid "timing" the market for entry and exit when investing in well-diversified funds as it is not possible to do so by even the best of market managers.
2. Such a "concentration risk" strategy can be highly risky over the long run.
3. Also, "timing" the purchase and redemption in mutual funds is not everyone's cup of tea and could lead to disastrous results.
4. Taking higher risks for higher returns is a very specialized job which should be done by seasoned fund managers.
5. Systematically investing in a few well-diversified funds is the best strategy to build long-term wealth.
6. When investment decisions are made by following what others are doing, that too reflects the personality of the investor.
7. Although almost every investor knows Warren Buffet’s quote that he always sold when others bought and bought when others sold, rarely investors follow the same strategy with their personal investments.
8. And this herd mentality is seen across asset classes — be it gold, equity, debt or real estate.
9. It is also seen that rather than trying to tell investors that they should make investment decisions based on logic, those who are selling investment products often sell the ones which are in vogue.
10. It’s like a doctor who will not give an injection just because the patient doesn’t like it or doesn't want it, although it could have serious long-term repercussions.
11. Like a menu card in a restaurant is for us to "choose" from, in investing business too, the approach has to be to select what is ‘right’ for you, as someone else's "right" may actually be "wrong" for you.
12. This normally happens as nobody is sure how to act, people take cues from others, and do whatever they are doing.
13. So, if most people are redeeming their units after a sustained market outflow for a month, they will consider it the best course of action and do the same, little realizing that mutual funds work best in the long term.
14. Conduct your own research and base your decisions on facts, your financial goals, as well as your current situation, not just on others' decisions.
15. You should not stop Systematic Investment Plan (SIP) investments of your well-diversified funds in a falling market, as the process of SIP is based on the concept of long-term rupee-cost averaging, under which an investor would buy more units when prices are low and buy less of when prices are higher.
16. It also addresses the volatility factor in prices, when units are bought over several months.
17. So, naturally if you stop your SIPs when the market is falling, you lose the chance to buy more in your SIP.
18. In other words, you would forego the chance to add more units when their NAVs are falling if you stop SIP.
19. In fact, if you continue your SIP in a weakening market, it could even turn out to be a blessing in disguise in the long run.
20. In case you're holding sectoral funds, or lowly ranked funds, this is the right time to redeem or weed them out, preferably in a tax-efficient manner, put the proceeds into a liquid fund and then start SIP in a Balanced fund completing the investment process in a year.
21. This will also reduce your short-term anxiety, but holding more than 6-8 months expenses in a fixed income product purely due to volatility, is not conducive for wealth creation.
22. Avoid "timing" the market for entry and exit when investing in well-diversified funds as it is not possible to do so by even the best of market managers.