So where did Aman go wrong? We frequently meet families with such an experience. We believe what most of them lack is adequately following a methodology. Here are few tips for you:
Goal based investments brings in discipline. When you know that you need to save for your daughters post graduate studies in US in 2022, your focus on the goal allows you to defocus on timing. Goal based investments also relieves you, now that you have a plan and you are actually following the plan. Making ad-hoc or lump sum investments without any goal makes it easy for you to withdraw the investments as there is no purpose.
Regularly invest through Systematic Investment Plans (SIPs)
We love to time the markets. Valuation of the Sensex is a common man discussion point. We know of clients who have been waiting for years to invest in Mutual Funds ‘once the markets are down’. SIPs work on Rupee Cost Averaging principle and helps you to average out your price. When you are going to exit in 2022 at a Sensex of say 50,000, does it matter so much that whether you enter at Sensex of 23,000 or 22,000?
Do you invest in a Mid & Small Cap or Large Cap? Should you invest for a Banking Sector fund? How much monthly saving is needed to meet your goal and if there is a gap with the available SIP budget, how to bridge that? Looking at your risk tolerance will help you get a direction. This tool on Moneycontrol website is a good starting point. You should look at the fact sheet of the fund and understand the investment objectives of the fund.
Review your MF portfolio and take actions
We have seen most clients failing here. One should look at the MF portfolio once in a quarter, at least once in a six month. You can follow Traffic Light reporting system, famous in the Corporate world. Every MF scheme should be rated as Red, Yellow or Green. Red means Sell, Yellow Means Hold what you have but don’t buy incremental and Green means Buy. You can visit websites like valueresearchonline.com, moneycontrol.com and Morningstar.in to check the performance of the funds.
Selling too early or too late
When equity markets fluctuate, most common investors pull out. Goal based investment framework, understanding of how SIPs work and regular monitoring of your portfolio will give you the conviction to stay on even during difficult days. It’s very common for investors to periodically sell off accumulated holdings in Equity MFs and invest in Real Estate. We suggest you review your asset allocation before taking such steps. On the other hand, we see investors with ‘Buy and Hold’ strategy with no changes in the MF portfolio for years. This again, may not work.
Start of the new financial year is a good time to set your financial priorities. So review your goals and investment budget. Get started off on few good quality funds and invest and review regularly.
This article was originally published on Moneycontrol