Strategise Equity Investments Better

Hemant Rustagi
Chief Executive Officer, Wiseinvest Advisors

If you have been investing in equity funds, you must have realised that equity markets tend to volatile from time to time. While the reasons for the volatility at different times may vary, it is important for you to tackle these volatile periods well to get the best results from your equity investments over time. Simply put, you must have a strategy to tackle these volatile periods. A combination of clearly defined time horizon and a disciplined approach can help you do that and enhance your portfolio returns. 

While it is heartening to see an increasing number of investors adopting a disciplined investment approach, there is a still a large section of investors that invests in equities randomly and hence fails to get their due rewards. So, if you are one of those investors who haven't been following a proper investment strategy, it's time for you to get committed to investing with a long-term time horizon as well as following a disciplined investment approach whereby you invest a fixed sum at a pre-decided interval. 

It is equally important to choose an appropriate investment option as it helps in creating the right balance between risk and reward. For example, you have an option of either buying stocks directly or investing through a managed investment vehicle like mutual funds or a mix of both. 

Each of these options requires a different investment strategy. If you choose to invest in stocks, you must know how to select them as well as different investment philosophies such as bottom up and top down. Both these philosophies have their attendant risks and rewards. Besides, considering that different segments of the market i.e. large cap, mid-cap and small cap provide different level of opportunities with the attendant risks, you must have an appropriate representation of these segments in your portfolio. 

Similarly, for investing in mutual funds, the key factors are suitability of funds as well as their investment philosophies and portfolio composition. Although past performance also plays an important role in the selection process, you must put it in proper perspective and shouldn't make it the sole reason for investment. In terms of potential of returns, while individual stocks can get you higher returns, the concentrated nature of the portfolio can expose you to much higher risk than a well diversified investment vehicle like mutual fund. Besides, mutual funds offer other benefits such as professional fund management, transparency and flexibility of making changes in a tax-efficient manner. Whatever be the composition of your portfolio, you need to monitor its performance closely and realign it with your changing needs as well as economic scenario. For example, for your direct investment in the stocks, you must keep an eye on major national and international events that may impact the prices and the prospects of the stocks in your portfolio. At times, it may be imperative to make changes in the portfolio to tackle the ever changing economic scenario. If you fail to do that actively and effectively, your portfolio could suffer by way of increased risk and/ or inconsistent returns.

Similarly, when you invest in equity funds, you entrust the job of realigning the portfolios to the fund managers. Most fund managers actively manage the portfolios so as to protect you from volatility as well as to earn higher than market returns for you. For example, when a fund manager expects the markets to turn volatile, he may opt for paring positions in some of the stocks and reinvest at an opportune time. Hence, you must not make the mistake of exiting from equity funds when the markets turn volatile. 

As is evident, equity investments require you to have patience and perseverance as well as time commitment to allow them to improve your overall portfolio returns without exposing you to undue risks.