Friday, December 3, 2010
Namaste to all the readers!
It is nice to be with you here at the place and time, where it is very important to understand the volatility of equity market. Equity was volatile, is volatile and will be volatile. So many times, I hear from my investors asking me to postpone the investment & wait till the market is Seattle down. The money belongs to the investor, I cannot control his decision, I am his advisor, I am his guide & left with no other option than to follow his instruction.
Sometimes there is openness in discussion, Investors have some ideas. But they do not insist to implement it. Instead they ask my (expert) views. Here, Fair discussion is possible. I can openly express my views & Pros & Cons of Equity market.
So today, when market is volatile, We should learn how to ride it, We should no way escape from it. We cannot us early jumper or late entrant.
I will give you my ideas on how to ride the volatility..
I believe that most of the investors are sensitive to the valuation of their investment. So to start with, Let we discuss conservative approach. First we have some investment schemes available with us which works on valuation of markets. PE (Price earning ratio) is the better tool to consider whether the market is expensive or cheap. The Nifty PE of 10 to 14 is considered to be cheap market & PE of 23+ is considered to be expensive market.
These schemes buy/hold more amount of equity in the portfolio. When the market is cheap (i.e. buy more equity when PE is lesser than 14) and sell equities when market is expensive (i.e. sell when PE is above 23.) so the fund act on simple psychology of selling at high & buying at low. This helps investors as it is a monitoring free investment.
The investor need not to go his agent/advisor to instruct him to sell or buy in market at high or low. The scheme itself takes care. The profit taking is within the fund so it is tax free investment transaction. To investors, In fact it is a best risk/return adjusted investment option. Currently, ICICI Prudential dynamic equity funds, F.T. India Dynamic PE Ratio Fund, Pramerica Dynamic fund are available to investors
Principal Smart Fund is latest entrant in this group.
There is one negative point of this investment & better to be discussed here. During straight upward trend of market, this fund will give comparatively lesser returns than diversified equity fund As it is not heavily invested in equities.
However, it protects investors when market is in silent mode. The actual out performance of this option is available after completion of tone teji /mandi cycle.
An investor should hold appx 15 % of investment in this fund as diversification. Next time we will discuss aggressive approach to ride the volatility. We will also discuss SIP/STP as a tool to ride the volatility.
I hope my first blog on Indian mutual fund market has been helpful to you.