The Indian equity markets have been on a rollercoaster ride in recent times, with record highs being reached in 20 months from 2016 to 2021 and 9 months when the market corrected after ending on a high. For investors, this can be both exciting and daunting. On the one hand, the prospect of higher returns is enticing, but on the other, the fear of a market correction looms large. This article aims to provide you with what you should do when the market is at an all-time high, the role of equity mutual funds, and the benefits of rebalancing.
What to do when the market is at an all-time high?
When the market is at an all-time high, it’s natural to feel a sense of uncertainty. However, it’s important to remember that market highs are a normal part of the investment cycle. Here are a few steps you can take to navigate this period:
- Stay focused on your investment goals: Remember why you invested in the first place. If your investment horizon is long-term, short-term market fluctuations should not deter you.
- Diversify your portfolio: Diversification is key to managing risk. Consider investing in a mix of asset classes, such as equities, bonds, and real estate.
- Review your asset allocation: Regularly review your asset allocation to ensure it aligns with your risk tolerance and investment goals.
Should you stop equity mutual fund investment during an all-time high market?
The short answer is no. Equity mutual funds are a great way to invest in the stock market without having to pick individual stocks. They offer diversification, professional management, and the ability to invest in a wide range of companies.
However, it’s important to be mindful of your investment horizon and risk tolerance. If you’re investing for the long term and can stomach short-term market volatility, then continuing to invest in equity mutual funds can be a good strategy. On the other hand, if you’re nearing retirement or have a low-risk tolerance, you may want to consider shifting some of your investments to less volatile asset classes.
Is rebalancing beneficial during a market peak?
Rebalancing can be beneficial during a market peak. It involves selling assets that have performed well and buying assets that have underperformed, bringing your portfolio back in line with your target asset allocation.
Rebalancing can help you stay disciplined and avoid the temptation to chase returns. It can also help you take advantage of market opportunities by buying assets that are undervalued. With the advent of digitisation, you can now conveniently invest in mutual funds online and easily monitor your account anytime and strategize rebalancing whenever required.
How does rebalancing work?
Let’s say you have a portfolio with the following asset allocation:
- 50% in equities
- 30% in bonds
- 20% in cash
After a year, the equity portion of your portfolio has performed well and now makes up 60% of your portfolio, while the bond and cash portions have decreased to 25% and 15%, respectively.
To rebalance your portfolio, you would sell some of your equities and buy more bonds and cash to bring your portfolio back to its original asset allocation. For example, if your portfolio is worth INR 100,000, you would sell INR 10,000 worth of equities and buy INR 5,000 worth of bonds and INR 5,000 worth of cash.
Conclusion
Navigating the Indian equity markets at all-time highs requires a disciplined approach and a focus on long-term goals. Equity mutual funds can be a valuable tool for investors, and rebalancing can help you stay on track. By following these tips, you can navigate market highs with confidence and meet your long-term financial goals.
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