Buy in a falling market

PERSONAL FINANCE

With markets on a free fall, it could be a good time to create portfolios.

Hemant Rustagi, CEO of mutual fund distribution firm Wise Invest Financial Advisors, has received over 15-20 calls in the last two days. “Investors are anxious to know if the worst is over. It is something I have no answer to,” he said.

Rustagi is not the only one facing such uncomfortable questions. Hitungshu Debnath, Executive Director (Wealth Management), Angel Broking, has been holding “informal conversations” with his clients for months. “The continuous flow of bad news since January has given jitters to many investors,” he accepted.

International events, such as the Merrill Lynch takeover, have their impact as well. Financial planners have been getting calls from clients since this morning. The reason: Merrill Lynch’s takeover by Bank of America has left investors worried about the prospects of DSP Merrill Lynch Mutual Fund.

Since January, leading financial institutions, such as Bear Stearns, Lehman Brothers, Merrill Lynch and Citibank, have been in the news for all wrong reasons. This has sent the financial markets worldwide into a tailspin.

Returns from mutual funds have slipped drastically. According to data from Value Research, a mutual fund research agency, returns from diversified equity funds (category average) have fallen by 16 per cent in the last one year.

Equity technology and auto have done even worse with their returns falling by 27 and 23 per cent respectively.

In such circumstances, when the future cannot be foretold, investment experts feel that this is a good time for the young, who have not begun investing, to start doing so. “For the already invested, a wait-and-watch policy is recommended. However, new investors can start shopping now in bits and pieces,” added Debnath.

That is what Shubha Shukla, a housewife who invests in stocks, is doing. She exited the market six months ago but started investing last week. For those who have invested lump sum amounts in mutual funds, this could be a good time to put in more money to average out costs. If you are starting the investment process, take the systematic investment plan (SIP) route.

This will ensure that you have good returns in the long run. And, data prove it. Equity diversified funds (category average) have returned 29.87 per cent a year in the last five years. Good funds have returned even more than 35 per cent a year.

As far as asset allocation goes, while it may not be prudent to change it completely, a little tinkering can be done.

Director and head of private wealth group J M Financial, Vipul Shah said, “If you are concerned with your asset allocation, reduce exposure to equity by 5-10 per cent and move to debt.”

Market guru Warren Buffet has famously said, “Be fearful when others are greedy, and greedy when others are fearful.”

This is a good time to follow it.