Let Your Goals Be The Priority

Equity is an asset class that helps you earn positive real rate of return over time, provided you invest in line with your asset allocation as well as time horizon and invest in a disciplined manner 
 

The Indian stock markets are touching dizzying heights. While investors are happy looking at how their portfolios are performing, there are those who are wondering whether they should stay invested or whether it is time to book some profits. Besides, some of those looking to begin their investment process are contemplating whether they should start investing at the time of such high valuations or wait for the market to cool down. If you are one of those investors who are facing either of these dilemmas, here’s what you need to do.
 

The decision to book profit now or not should depend upon your investment objectives and time horizon. If you have been investing with a clearly defined time horizon as well as in line with your asset allocation and still have time on hand, you need to continue with your investment process. Of course, if you began investing without having a clear idea about your time horizon, it’s time to do that now, and then decide the course of action.
 

However, if the defined time horizon for any of your goals is nearing completion, it will be apt to start paring exposure to equity funds. In fact, it’s always a good idea to rebalance your portfolio a year or two before you need to access your money for a certain goal. This will help you protect your gains and figure out the right investment strategy for your future goals like generating regular income and | or utilising it for children’s education over the next few years.
 

Another aspect that attracts the attention of investors in a rising market is the performance of funds in the portfolio. Investors usually expect all the funds in the portfolio to do well in such a scenario. The fact remains that even within equity funds, the allocation to different market segments can make a difference to how these funds perform. For example, funds with higher allocation to mid-cap and small-cap stocks would do better than those that have a higher allocation to large-cap stocks.
 

In fact, there can be a temptation to move money into aggressive funds to take advantage of the emerging market scenario. While there could a merit in reallocating more to mid-caps and small caps if the existing portfolio allocation is dominated by large-cap stocks, one must keep an eye on balancing risk and reward. The key factors in making this decision would be your time horizon, portfolio size, understanding of equity markets and risk profile.
 

Then, there are those who often wonder whether it makes sense to continue investing through SIP at such high levels. They will do well to remember that investing through SIP in equity funds is a long-term commitment and hence the focus should be on their goals and the benefits of this disciplined approach rather than the current market levels. Moreover, considering that a disciplined approach helps investors in keeping emotions out of their investment process, doing something abrupt will defeat the very purpose of following this approach.
 

While the existing investors face these dilemmas, those looking to start their investment process in a current market like situation may also find it unnerving to take the plunge. The question that often comes to their mind is whether they should start investing through SIP when the markets are touching dizzy heights. It is a well-known fact that the stock market goes through various cycles and hence the key is to invest for the long term and stay committed to your time horizon. Clearly, at what level of the market you begin your investment process doesn’t impact the final outcome. Remember, equity is an asset class that helps you earn positive real rate of return over time, provided you invest in line with your asset allocation as well as time horizon and invest in a disciplined manner.