There is a saying in Hindi:
धीरे धीरे रे मना धीरे सब कुछ होय |
माली सींचै सौ घड़ा ऋतू आये फल होय ||
This means that everything happens gradually and not before its time. A gardener waters the plants daily but the plants bear fruits only in the right season.
In the last few days, there has been lot of brouhaha over NIFTY scaling “Mount 10K”. However, this means little to those investors who were regularly investing even when NIFTY was at sub 7000 level in February 2016 or around 8000 levels during demonetization phase. If doomsday forecasts by “experts” could not sway you earlier, there is no reason to be swayed by the hype now.
NIFTY at 10000, does it really matter?
Like me, I think you must have travelled long distances by trains in your life. If you are going to New Delhi from Howrah, there will be many stations in between. Sometimes, train can stop between two stations and sometimes it can make up for the lost time. No matter, which station the train has reached, you complete your journey only when you have reached your destination.
Similar is the story of our financial journey. Index levels are just like different stations in our financial journey. We need to get off the equity train only when our financial goals are in our sight.
First question to ask What are we investing for?
Investing our money is like sacrificing pleasures of today to achieve something in future. So, we need to ask, what we are investing for:
- Our retirement
- Kid’s education and marriage
- A dream home perhaps
- A foreign vacation
- A more intangible thing like financial security where our investment portfolio is, for example,40 times our annual expenditure.
What to do when NIFTY @10000
What you do with your investments depends less on where the NIFTY is and more on where you are in your financial journey. Now, if you are investing for any of the above goals or any other goal, there are two important questions whose answers will determine what to do next:
- When do you need money? Do you need money in less than 5 years or more than five years is a key question? The shorter the time, lower the allocation to equities.
- How much of the target corpus you have achieved? Whether you are investing for your kid’s education or your retirement, you will have an idea about how much you need for that particular goal. What you do also depends on how much of the target you have achieved already. If you have already reached the target amount, then it makes sense to reduce the risk and go for fixed income instruments. If you are within 20-30% of the target amount and fixed income type of return (6% to 7%) between now and your target date (time when you need money) will help you reach your target, you can reduce equity allocation. If your goal is 15-20 years away and you are far below your target amount, you just need to continue systematic investment into equity funds.
The diagram below gives an idea about what should we do.
Just to summarise:
- If your financial goal is more than 5 years away, it is better to continue to stick with equity.
- If your financial goal is less than 5 years away, it is better to have higher allocation to fixed income (debt mutual funds or fixed deposit). If a FD type of return (between now and the time when you need money) will help you reach your near-term goal, switch to fixed income instruments. Keep taxation in mind.
The above content is just for information and should not be construed as an offer to buy or sell or recommendation. Contact your financial advisor for guidance on any investment related query.
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