Vaibhav Agrawal, SVP, Research, Angel One 

Introduction

Stock markets are not for baseless speculation. Those intrigued by sharp movements in the equities market know that this is not a usual phenomenon. Instead of developing FOMO and jumping into the stocks without understanding the relative strengths and fundamentals, it is better to assess the potential and then bet as per technical indicators.

The markets are in a peculiar position. There is volatility, fear, and a significant amount of hope in a pandemic-hit global economy. This, along with the disruptive phase of development through technological advancements and digitisation of economies, has put much pressure on the traditional businesses, which will sooner or later reflect in the stock price movements. Furthermore, new winners will be in the form of new-age tech companies that will demonstrate their strength on the exchanges.

For an indirect stock market investor who pours money into the companies through mutual funds, it is crucial to have a correct approach. There is a risk of losing gains that the investors might have accumulated over many months. Furthermore, the investors would be raring to book profits, presuming a market correction.

Here are a few strategies that a mutual fund investor should take into account during an all-time high market:

1. Be proactive rather than reactive

It is important to think clearly and avoid clouded judgement as rash decisions are counterproductive to investments. As long as one is in the bet with a calculated risk appetite, the retail psychology of following the market can be avoided. Market movers have the big chunk invested in various instruments, who are the ones whose moves really matter. If they are in the market, so should you.

1. Staying committed to SIPs

Liquidating investments are not advisable when the funds are surplus. Following a systematic investment plan leaves room for market corrections which is not the case in lumpsum bets. Markets work cyclically, meaning if they go down for whatever reason, they also tend to bounce back. Hence, based on the current state of the market (bearish or bullish), it is never recommended to stop or postpone SIPs as they tend to provide average returns over a long period of time.

1. Diversification is key

Putting all your balls in the same basket is never advisable if you don’t intend to lose all your balls in one go. Here, balls mean money, and basket means different asset classes. So, if you want to play safe, you should identify certain categories and rationalise your investments among them. This allows for stable fund allocation and returns while preventing unmanageable losses during catastrophic events.

1. Timing the markets is unreasonable

Dynamic asset allocation is a time-tested way of actively managing mutual funds. One way of achieving dynamism is through opting for a Systematic Transfer Plan that converts debt to equity investments in a staggered manner. Conversion can be planned depending on whether the markets are bullish or bearish. Debts instruments earn interest incomes, making them bear market-friendly, while equities prosper in bear markets. The need to right often drives investors to fall prey to their emotions, a recipe for untenable losses. As is true for any fight, agility is crucial and can never be overstated but has to be distinguished from hastiness.

1. Keeping track of market movements

Most mutual funds provide the facility of additional investments (lump sum and extra SIPs). This facility can help increase the total investment. An investor must keep track of market movements to make additional lumpsum investments when the markets witness corrections. Such an approach could help in increasing the overall returns from mutual funds.

Conclusion

These technological advancements have led to the development of smart strategies for making the most of all phases of a market move. There are extremely agile approaches to calculating regressions and deviations among various factors impacting an instrument. Historical analysis is one of the ways of formulating trends in the market and making decisions on its basis. These have established that market highs are not scary but very natural. The markets backed by a logical inflation rate are bound to touch newer highs as time progresses. Staying vigilant about influencing factors and keeping up to date with the news is what smart investors do.