When it comes to creating long-term wealth, nothing beats asset allocation. Though this topic is often discussed, Indian investors tend to lean heavily towards traditional investment options when it comes to making investment choices. Equities are hardly a point of consideration, given the fear of losing money in the market.
Over the past three years, there has been a change in this sequence of consideration. Over the course of last one year, retail investors have consistently flocked to the market, taking the industry SIP
book to a high of Rs 4,200 crore in April 2017 – all through SIPs – show data as on April 31.
However, at this juncture, it is important to remember that just because the equities
segment is performing, it doesn’t mean you increase your exposure to this one particular asset class considerably. With the benchmark indices currently hovering around all-time highs, this is the time for a prudent investor to exercise caution. That is because market valuations based on various parameters like price-to-earnings (PE) indicate that the market is expensive, while on the basis of price-to-book (P/BV) and market-cap, it is courting slightly above its long-term averages.
For those who have been investing
over the past few years, the portfolio
gains might be quite handsome, pushing up the overall portfolio
value. So, now is the time to make some prudent rebalancing to the portfolio
such that the gains are fortified. This is because no asset class, especially equities, can guarantee gains at all times. In equities, volatility is sure to make a return and that’s when the going gets tough.
Therefore, for a retail investor, apart from SIPs into core portfolio
funds, one could consider opting for dynamic asset allocation funds for lump sum investment as well as for any fresh market entrant. What dynamic asset allocation effectively does is help negate the burden of emotions associated in the investing…
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