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Volatile markets - Investing tips for mutual fund investors

A lot is going on in India's stock markets. Whether it's domestic catalysts or international issues like the Greek crisis or the macro-economic problems in Europe, Indian investors are facing a lot of market swings. So, what is a retail investor who invests through mutual funds supposed to do in all of this? Here we share some tips with you that should help you think about your investments and how best to cope with the gyrations of the market.

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1. Stay invested: Unless you fear a total meltdown and expect the Sensex to move back down to 8,000 levels, stay invested. Why disturb your investment process and interrupt the compounding of your capital by completely pulling out of the market?


2. Use opportunities to add to your portfolio: Market corrections provide patient investors with a great opportunity to add to their holdings, because funds become cheaper (indicated by falling NAVs). If there is a good fund that you have been wanting to invest in but have not done so because you thought the markets were racing up too quickly, use the declines in the market to add to your holdings. Ask a qualified advisor to help identify interesting investment funds for your portfolio.


3. Cut out the noise, think long-term: Will the Greek crisis really affect the consumption patterns of Indian families? Will the European banking crisis really dent India's infrastructure growth? A lot of what affects day-to-day stock prices ends up being noise. In the long run, the Indian market will go up or down based on the fundamentals of our economy and the earnings potential of our Indian companies. The long-term future for our economy is safe, in fact quite bullish. The biggest favour you could do yourself is to invest in high-quality mutual funds that are invested in companies that will benefit from India's long-term growth.


4. Don't try stock picking at home: Stock picking is not for everyone - one needs time, expertise, and research capabilities, all of the things that give professional investors an edge over the retail investor. In times like the past few months, your skills as a risk manager for your personal portfolio will be severely tested due to the market volatility. So, rather than being overconfident in your own abilities to pick stocks and manage portfolio risk, a smarter thing would be for you to put your money into a mutual fund where an expert fund manager will do the stock picking. If you are unsure of what is a good fund to invest in, just invest in an index mutual fund, which should mimic the performance of the market indices.


5. Don't wait to time the market: A common mistake that retail investors make is that they foolishly convince themselves that when the market goes down, they will be ready to jump into the market. Even the best of professional investors admit that this is tough to almost impossible because nobody knows when exactly the market will go down. So, as a retail investor its best if you continue to invest periodically through SIPs (systematic investment plans) rather than wait for that perfect opportunity to enter the market. If you wait too long, chances are your fears will take over you and because of your inertia you might end up waiting forever.


6. Review your asset allocation: The typical retail investor invests into a few different funds and then often ignores looking at their total mix of holdings. At times like this when the market is volatile, its best to review your what your mutual fund asset allocation across different sectors, indices and assets like equity, debt and balanced funds looks like. Are you sure you are not too over exposed to one particular sector now that prices have moved around? Would it be better for you make some minor adjustments to get your portfolio back in shape? Use dislocations like the current time to make adjustments to your portfolio that can help you in the long run.


7. First time investors, start investing now: If you are a new investor, now is probably as good a time as ever to start investing. Don't be intimidated by news headlines of falling markets. If you believe in the long-term future of India, then its best to buy funds when the prices are dropping, rather than when prices are rising. When you buy at a lower price, like today when the index is around 16,000, chances are that you will get much better returns than when the market was at 18,000 just a few weeks ago. The biggest risk that we Indian's face is the risk of not being invested and missing out on the huge long-term returns that patient long-term investors will make in India. Don't leave your money in a bank account that won't earn you a huge after-tax return. Invest in equity mutual funds and give yourself the opportunity to earn better returns on a post-tax basis than your bank FD might give you.

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