Have you suffered huge losses in the stock markets in recent times? What do you do in such a situation? Should you sell the rest of your stocks and quit the stock market? Or should you buy more at lower prices?
What should be your stock market strategy when the world over stock markets are crashing?
To answer these and various other money and invetsment queries on how to invest in a falling market, financial planning expert Vetapalem Sridhar, hosted a chat with GA readers on November 10. For those of you who missed the chat, here's the unedited transcript:
arun asked, wat should be strategy while investing.... short term or mid term??
Vetapalem Sridhar answers, Hi Arun, in the short run the mkts r expected to remain volatile with wild swings on both sides. We have seen around 35% rally in mkts from bottom during the last few days. This is typically a trader's market. Over the short to medium term mkts r not expected to go to previous highs. If invested at lower levels over the medium term u can expect to make reasonable returns.
india asked, what abt investimg in infrastructure companies involved in building road projects
Vetapalem Sridhar answers, Real estate and some infra stocks have fallen by more than 80% from their peak. There definitely is a lot of opportunity available in this space. But caution is advisized. One of the most important factors to evaluate for real estate and infrastructure companies is their debt-equity ratio. Where debt is negligible and financing is available the risk to the company is less. If the promoter is shareholder friendly such companies will deliver superior return once there is a recovery in the real estate space.
hello sir, how are you? asked, how is the stock market in future...It will be volatile like now or it will become stable?
Vetapalem Sridhar answers, Hi! Mkts r going to remain extremely volatile in the short run. There is talk that mkts will go below the recent bottom it had touched. It is difficult to predict exactly how mkts will act. It is best to conitnue to invest regularly into equities as part of a long term investment strategy. A small portion of money MAY be kept aside to invest it as lumpsum amts as and when mkts go down further. There will be difficult days ahead for the economy. It will be a while before the growth will be on track and Mkts going into a new Bull run. With a 5 yrs horizon a lot of Bluechip stocks r available where u can make a 20% annualised returns by investing at current levels, if someone is willing to bear the downside risk in the short term.
girish asked, Please guide where do i invest to make good returns in long term basis.
Vetapalem Sridhar answers, Dear Girish, investing into Mutual Funds which primarily invest into frontline bluechip stocks is the best way to make gud returns over the long run. Investing into Index fund too would be a gud option. Have a 5 plus yrs horizon and be prepared for volatility in the value of ur investments. If volatility is something which u cannot take, then doing a FD into a bank is a gud option at this stage. Look at funds like HDFC Growth, Reliance Vision, Sudnaram Select focus.
krishna asked, Till today, I did not invest on shares or mutual funds because of the financial problems. Now I can start with small investment. Is it worth to purchase shares at present?
Vetapalem Sridhar answers, Dear Krishna, start with a SIP into Mutual Funds. IF u have a horizon of 5 yrs u can start of with ur SIPs and dont worry about where the mkts move in the short run. U will make reasonable returns with a long term horizon.
satchida asked, Hi. I am sitting on a loss of 56% on my portfolio. What should I do now?
Vetapalem Sridhar answers, Dear Satchida, not just u but a lot of investors r sitting on huge Marked to Market losses. It is not a real loss unless u choose to sell. There is no other option but to remain invested with a long term horizon. It is best to be invested in large cap Bluechip stocks during bad times in the mkt. Maintaining a suitable Asset Allocation is the key to creating wealth in the long run. Also it is extremely important to continue to invest regularly with a long term horizon even in such mkts as u r getting great companies as extremely attractive valuations.
Vetapalem Sridhar answers, Dear Sathya, bear mkts move sharply on both sides and r hence like a Double edged sword, it cuts from both sides. If u are able to accurately predict the mkt movements, u can make a lot of money. The probability of doing this though is quite small. Even if u wish to try, I would suggest that limit ur exposure to just 10% of ur investible surplus.
Ashish asked, Hi Sridhar, I have invested in Fidelity Equity Fund since the start of the Fund; All the Investment is thru SIP; Currently it's under loss due to the market falling down. Hope By the SIP of Rs.3,000 pm for the next 15 yrs I can built a corus of 20lacs atleast for my child's education?
Vetapalem Sridhar answers, Dear Ashish, a 3K SIP p.m. growing at an annualised rate of 15% should roughly grow to around 20L in 15 yrs. Just continue to invest with discipline.
surendrasingh asked, my investment details- Reliance vision - Rs3000 per month Reliance diversified - Rs 3000 per month SBI contra - Rs 3000 per month SBI magnum tax - Rs 3000 per month ICICI Infracture - Rs 2000 per month HDFC equity - Rs 1000 per month KOTAK oppurinity - Rs 1000 per month FRANKLIN prima plus - Rs 1000 per month if some changes my portfolio then guide to me every fund giving to me negative returns thanks surendra singh
Vetapalem Sridhar answers, Dear Surendra, during such times it is best to avoid investing in small and midcap stocks. Also avoiding Sector/thematic funds too r not advisable. It makes sense to continue with Reliance Vision, SBI Contra, Franklin Prima Plus and HDFC Equity.
nirav asked, i want to invest around 5 lacs of rupee...how should be my portfolio looks like??
Vetapalem Sridhar answers, Dear Nirav, being reasonably in cash was a very gud strategy. All money that u need in the next 2-3 yrs time should be parked into a Bank FD. Of the rest of the money which u can invest for a 5 yrs horizon, a phased investment into mkts is recommended. I would suggest that a 25% allocation at current levels into 3-4 funds. Something like a HDFC Growth, Reliance Vision, Sundaram Select Focus, SBI Contra, etc... U can invest in chunks of 25% based on either time or then on mkt levels. Decide on a strategy and stick to it. Once a strategy is made just focus on execution of the strategy.
ash0909 asked, hi can u just tell me what is difference between growth and divident MFs?
Vetapalem Sridhar answers, Hi! It is best to invest into equities with a min. 5 yrs horizon. If ur horizon is long term then investing into a Growth Option is best. To know about the difference plz read thro the following link Dividend Vs Growth....
manish asked, is FMP is still a safe investments for us?
Vetapalem Sridhar answers, At this stage I would suggest investing into a bank FD, where u r getting around 10.5 to 11%.
Mayur asked, Is this the right time to investin market for retail investors, if yes than wht is the time frame he shld hang on on wht sectors shld be focussed on
Vetapalem Sridhar answers, Dear Mayur, for someone who is investing at current levels a 5 yrs horizon should be gud. It is best to invest into a diversified portfolio of bluechip large cap companies. There should be an awareness that mkts will remain volatile over the short to medium term. It is very difficult to predict the bottom and hence regular investing is recommended.
Yash asked, Dear Sir, I am planning to purchase a ULIP based insurance policy. I intend to pay premium for 3 years and then either withdraw the amount or else let the amount remain invested provided I am getting insurance for the full period of Twenty years. I would like to know what sort of allocation should I go for looking at the present market situation and thinking of a long term stay in the market.
Vetapalem Sridhar answers, Dear Yash, I would suggest that for ur Life cover needs take up an adequate TERM Cover. The rest of the money invest wisely into a Mutual Fund with a suitable asset allocaton strategy. Investing just 3 installments into a ULIP is not a gud idea. Most charges for a 10-15 yrs ULIP policy is recovered from u in the first 3 yrs itself.
gautamjotwani asked, Hi, In the past I have invested majorly into MF and currently also with such low market I have continued with SIP's is it okay to stay with MF's as I am seeing lot people are exiting from MF and I also constantly see NAV's going down day by day..please advise.
Vetapalem Sridhar answers, Dear Gautam, do u need money from ur investments now? If u do not need it and suppose u sell it wat will u do with the surplus money? U will plan to invest it somewhere. So at this stage if we evaluate investment options, then which options look gud. If ur horizon of investing is 5 yrs, then equities seem to be one of the best options. So if the money u have already invested is for the long run, then it makes sense to remain invested. Also continue to invest with discipline.
newbie asked, I plant to invest Rs.2000 as SIP in HDFC top 200 fund as it is linked with market. This is for my future savings as i m expecting around 15% annual returns of my mtnly investment. Kindly advice
Vetapalem Sridhar answers, Hi, ur returns expectation is reasonable. But for that to be met u should have a 5 yrs horizon. In the short term due to volatility u may not see consistent returns, but in the long run u can expect to make 15% annualised returns.
RS asked, Hi Sir, I want to invest in the market. Is it good to invest in Equities (Rs 50,000 lumpsum) or Mutual Funds ( Rs 7500/-)? Currently, I am investing in Franklin Flexi Cap, HDFC equity and HDFC long term advantage funds. I plan to be invested for the next couple of years and averse to taking high risks but expect decent returns. Please advice.
Vetapalem Sridhar answers, Hi, if u want to invest lumpsum split it into 3 parts and invest it over time based on mkt movements. A safer strategy is to do a SIP where u r not trying to time the mkts. From the HDFC fund house HDFC Growth should be preferred. Franklin Flexicap is a gud option. If r looking at a 3rd fund Reliance Vision should be a gud option.
sachin asked, I started monthly SIPs of various funds last Jan. These are DSPML eqty reg grwth, DSPML oppr fund reg grwth, Franklin flexi cap grwth, HDFC eqty growth, Sundarm BNP sele mid cap appreciation fund. I m planning for long term. Is this OK and PLEASE suggest ur view. thanks
Vetapalem Sridhar answers, Dear Sachin, most SIPs r into aggressive Funds. If ur SIPs in DSPML Oppor, Sundaram Midcap r getting over, then not renewing them is recommended. Instead starting a SIP into Reliance Vision and Sundaram Select Focus would be a better idea. Rest funds should be continued.
Rajesh Narayanan asked, I am Narayanan live an work in Kuwait, i was thinking of investing in American Life Insureance Co (ALICO) a subsidary of AIG. As pe rthe poslicy they say after decuting a ver small amount for insurance processing they would invest 80 % of my premium in various mutual funds and at th end of the term I would be entitled for receive a lupsum amount derived from the returns. After what has happened in the US and the news about AIG, i am afraid to invest in this. Would appreciate your advise.
Vetapalem Sridhar answers, Dear Rajesh, it is best at this stage to avoid investing there. If ALICO is going to invest in International Equities, u cannot expect to make gud returns. If u need insurance cover it is best to take up a TERM Cover. It would be a better idea to invest ur money into India with a 5-10 yrs horizon.
BSS asked, can a one yr time horizon be treated as long term for market corrections
Vetapalem Sridhar answers, One yr can be said to be a short term horizon as far as investing in equities is concerned. Mkts r expected to remain highly volatile during the coming months. With a 1 yrs horizon I would suggest investing into a Bank FD where u r getting a 10% return.
RJaiswal asked, Hi Sridhar, I save around 20,000 per months of which i have been investing 15k IN markets (Shares + ELSS). As i am single and have no other liabilities, i have been investing all this year at the same rate. Though i am in losses, but still i feel its a good strategy as i dont need this money for atleast 10 years from now and infact i will be saving 20,000 per month in the next 10 years as well. Your suggestion
Vetapalem Sridhar answers, Continue with ur strategy. U r on the right track to build wealth over the long term. During bad times it is best to invest into Bluechip stocks. Avoid midcaps for the time being.
Sagar asked, Hello Sir, I want to invest around 2 lakh rupees (1 lakh from my account + 1 lakh from my wife's account) for five years spam in share market. I need your help since I never invested in share market. WHAT CAN I DO? can you suggest me good stocks or your opinion where to invest?
Vetapalem Sridhar answers, I would suggest u to invest into a large cap diversified Mutual Fund. Some of the options r HDFC Growth, Reliance Vision and Sundaram Select Focus.
unmesh asked, Dear Sir, I have maintaiing holding in HDFC Eequity, HDFC Top 200, Prudence, HDFC Core and satellite, Reliance Vision, Reliance Growth, Reliance diversified power, SBI- global, contra, Templetion- prima flexicap and bluechip. Amount invested is more than 10 lakh and at present it is @ 47% down. Please advise it is prudent to continue investing in the same schemes?
Vetapalem Sridhar answers, Most funds r gud. It does however make sense to consolidate ur portf over time, to reduce number of funds. Fund u can look at keeping r HDFC Top 200, Reliance Vision, SBI Contra and Franklin Bluechip.
damager asked, Hi. As you mentioned earlier, most of the investors have their money stuck in the market with a notional loss. In the current environment where US and Europe do not seem to do well, there is every chance that market will be choppy. Do you recommend selling off current investment and buying again at lower levels. Like today market is up over 4%. However, in the coming days or months market may fall again to lower level.
Vetapalem Sridhar answers, It is very difficult to time the mkts. Just for an instant assume, that u did not own any stocks and hence there was no notional loss, would u still go and short the mkt? And to short the mkts wat r the skills and understanding that u need? Probably the answer u get enables u to become aware that when we r sitting on a loss in our investment, emotions start interfering in our rational decision making.
jaya2810 asked, is it advisable to INVEST IN DEBT-INCOME MUTUALFUNDS? what is DEBT-INCOME FUND?
Vetapalem Sridhar answers, Hi Jaya. If u are considering debt investment, dont u think a bank FD with a assured 10% return is a better option?
seshagiri asked, hi sir how long this pain will continue will this bearish phase is same as US (Dow marker) which is bearish phase for 10yrs??
Vetapalem Sridhar answers, I think for things to get better we have to first experience pain in the real economy. We will see a lower economic growth, job losses, correction in real estate prices, etc. It is difficult to exactly say how much time it would take, but around 1-2 yrs can be a fair estimate for a things to get better in India.
Gana asked, Hi VS, I have also invested 40k to ICICI Prufile schemes (Smart Kid, LifeTime Gold and LifeTime Pension(Maximiser) ) and as you know right now, all these are in bad shape because of the market, I need to hang on to this until the lock in period is over, so I really dont have a choice, what is your opinion on these ULIPs over a long term in terms of the 30%-34% returned that ICICI guaranteed? Thank You.
Vetapalem Sridhar answers, Dear Gana, no insurance company gaurantees u any return on a Market linked product. Infact in their illustration they r only allowed to should simulations using 2 scenarios - a 6% rate and a 10% rate. In a equity option ULIP can deliver around 10-13% over a 10-12 yrs horizon, if u pay all premiums. For investment purposes investing into Mutual Funds is a better options. For Life Cover, taking up a TERM Insurance cover is recommended. ICICI Lifeguard WROP is a gud choice for TERM Cover.
YSReddy asked, Hi Sridhar, I had taken tradional met life insurance and completed three years of payment and another ULIP policy from Bajaj Allianz and I had completed three years of payment. I had taken death insurance for Rs27 lakhs from the above mentioned ULIP. I heard that costs are heavy with ULIPS. Now I want to discontinue both the above mentioned policies and take term insurance and invest the entire remaining amount in tax saving funds. Please advice me regarding this. Thanks in advance.
Vetapalem Sridhar answers, Before u stop those policies first have the TERM Cover in place. U can take quotes from Reliance TERM Plan, ICICI Lifegurad WROP, SBI shield, etc for a TERM Cover. Invest into just 1 ELSS fund for tax purposes and the rest of the money should go into large cap diversified funds. For ELSS fund some options r HDFC Taxsaver, Sundaram Tax Saver.
dineshsh asked, Dear Sridahr, Pl. answer atleast one of question . I've invested Rs. 30,000/- in HFDC Long Term Equity Funds , in Jan-06 , at time of its NFO. I've invested with a view to minimum double my money in 5 years ( @ 18% P.A. return , but even after 34 months , I'm finding No Growth in it , infact Present Fund Value is Less than 30,000/- . Should I withdraw my money in Dec-Jan-09 , when exit window will be open for this . I've to pay 2% exit Load on that , as its a Close ended fund. Pl. advise what to do with this. Thanks in Anticipation. Dinesh Sharma
Vetapalem Sridhar answers, Dear Dinesh, it is best to remain invested for the full tenure of the fund. Over the next 3-4 yrs there is a strong likelihood that ur money would double.
Arvind Mathur asked, I am serving in Zambia and getting paid in US$. I had created a portfolio of Indian Mutual Funds comprising of Standard Charted Premier Equity(G), Sundaram BNP Capex Opportunity (G), Sundaram BNP Select Thematic Power, UTI Infrastructure (G), Tata Indo Global Infrastructure (G). The portfolio value is presently down by 50%. Suggest me an active portfolio startegy with a time horizon of 3 years
Vetapalem Sridhar answers, All funds u hold r either aggressive or Sector/thematic funds. It is best to be invested in largecap diversified Mutual Funds. If u plan to allocate fresh money to invest, u can looks at options like HDFC Growth, Reliance Vision, Sundaram Select Focus, etc. Also if u r investing more money and the exposure in existing funds is not very high and u can remain invested for a 5-7 yrs then hold on to them.
Vetapalem Sridhar says, That all for today Friends! Will catch up soon.....
Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at firstname.lastname@example.org.