Several people have asked me over the last few months as to how I am so confident about the Nifty levels suffering major cuts. To be honest, it was really not that difficult to predict as almost all contributing factors were in the negative. My expectations that the Nifty will find support in between 7200 and 7500 have not held though and it now seems that 6800 or even lower levels are possible shortly.
As I said in the last post, your portfolio has been damaged quite a bit by the current cuts and recovery will be a long and painful process. If you are investing for specific financial goals linked to your MF portfolio, you need to assess the impact and estimate what should be your SIP amount now so that the goal can be reached on time with a fairly modest XIRR of not more than 12 %. In fact even this may be a difficult thing in the next few years.
Even before you go into the specific strategies for your MF portfolio, you need to look at the other 2 portfolios of stocks and debt. For those who do not have a stock portfolio, this will be a great time to start with one. You can read up some posts elsewhere in the blog as to how you can get started. Over a period of time this will be a great contributor to your wealth. As far as debt portfolio goes, people who do not have a reasonable amount of it will have realized the great value that it provides as a hedge as well as in ensuring that you do not have to sell your equity investments in the wrong time. Actively look at investments like the Tax free bonds. The so called experts who were sneering at these earlier may well be queuing up to but these now.
Coming down to the specific strategies in terms of your current MF portfolio and ongoing investments, here is what I think you should be doing:-
- Your MF units are already down on NAV and if the market recovers they will increase in value. However, buying new units at progressively higher prices will only mean that your average acquisition price increases, which cannot be a good idea.
- Given the current market levels, it is reasonable to assume that the markets will recover in the second half of 2016. As such buying through SIP does not make sense.
- You can look at buying most of your MF investments between now and April/May.
- In case you have some surplus money from bonus, arrears or variable pay it will make sense to invest more in MF at this juncture. That will average out your purchase price and make your recovery relatively faster.
- It is in bad times that you get to see the true performance of a fund. If your fund is a laggard, be ruthless about it and shift to another one. The only thing that matters is how well it has weathered the downturn, do not be swayed by who is the fund manager or how many experts are asking you to stick to the fund.
- Use this opportunity to get out of the SIP mode and start making logical choice on MF purchases some 4-6 times a year. It is far more effective than SIP.
As long as you are able to do the above in a sustained manner, the crisis can yet be turned into a possible opportunity in creating better investment options for yourself.