Balancing The Investment Boat

Hemant Rustagi
Chief Executive Officer, Wiseinvest Pvt Ltd.

"Investors must realise that despite a number of benefits of investing regularly, monitoring the performance of the portfolio remains an important ingredient to achieve success over the longer term."

As more and more investors are investing through systematic investment plan (SIP), equity as an asset class is finding its rightful place in their portfolios. For all those investors who will continue this approach un-interruptedly, it would make a significant difference to their wealth creation process. While SIP can be a good starting point for a long-term investment process, one may still have to face anxieties and challenges depending on the behaviour of the stock market. The level of investment success one can achieve over time will depend upon how these situations are handled. Let us analyse a few of these and see how one should tackle them to keep the investment process on track.

Stock Market Doing Exceedingly Well : It is quite common to see investors experiencing a mixed feeling of fear and excitement when the market touches dizzy heights. In times like these, some of them feel compelled to either book profit or redeem the entire equity holdings. As a result, they miss out on varying degree of gains depending on the timing of the exit. While booking profits periodically may be essential for a set of investors, for someone who is in the process of building a corpus for certain long-term goals, taking money out of the market in the name of profit-booking could make them compromise on their financial future.

The major advantage of following a disciplined approach is that one gets to invest at different levels and that helps in ‘averaging’ as well as in avoiding the temptation of exiting every time the market goes up. In fact, regular investments ensure that one invests even at lower levels which an occasional investor does not normally do. Simply put, a disciplined approach helps an investor in keeping emotions out of the investment strategy. This is important as equities, as an asset class, tend to be more volatile in the short term as compared to other asset classes.

Need to Track the Portfolio : While some investors develop a habit of looking at their equity fund portfolio valuation almost on a daily basis, there are others who do not feel the need to track their portfolio thinking that a long-term disciplined approach will ensure investment success at all times. Both these approaches have their drawbacks. Investors must realise that despite a number of benefits of investing regularly, monitoring the performance of the portfolio remains an important ingredient to achieve success over the longer term.

If some of the funds in the portfolio are under-performing their peer group or their benchmark, their impact on the portfolio would make a dent in the corpus that would be required at the completion of the investment time horizon. While keeping a track of the portfolio may sound like a daunting task, in reality it is not so.

Temptations to Include a Few Aggressive Funds in the Portfolio : In a rising market, aggressive categories of funds like those investing in mid-cap and small-cap segments as well as certain sector and thematic funds tend to do well as compared to funds in the flexi-cap and multi-cap categories. No doubt, mid-cap and small-cap companies have a lot of room for growth as the economy marches ahead and hence can be a good means to enhance portfolio returns. However, a disproportionately higher exposure in them as compared to funds investing across different market caps with a bias towards large-caps can expose investors to much higher risk and that too without guaranteed success. Therefore, investors need to be careful while deciding the combination of equity funds. Simply put, aggressive funds should not have a disproportionately high weightage in the portfolio.