“Investors tracking macro economy thoroughly should not get swayed by the sudden positive changes. They should not buy or sell their equity or debt holdings on the basis of certain awaited positive headlines,” says Saurabh Mittal, founding partner, Circle Wealth Advisors.
As widely expected, the Reserve Bank of India (RBI) did not change its policy rates on the last policy review. Also, its outlook on inflation and economy was interpreted by many as the end of rate hikes by many. These people believe that the apex bank may start reducing rates next year.
Some advisors are putting it bluntly to their investors: It is the task of fund managers to add or remove the holdings and change their asset allocation in their funds based on changes in macro-economic scenario. We do not (or cannot) predict, that is not our expertise.
“Investors should buy or sell their equity or debt holdings only when they see that they are deviating from their desired asset allocation. Otherwise, there is no point increasing or decreasing their asset allocation based on certain events,” says Sharad Singh, founder, CEO, Invezta, an online platform selling direct plans.
Singh explains the concept with an example. For example, the desired equity to debt ratio for an investor is 60:40. If the market moves up by 20 per cent, investor’s asset allocation might look like 70:30. This is a deviation. In this case, the advisor would ask the investor to sell a part of equity investments and book profits to maintain the desired asset basket.
According to mutual fund advisors, if an investor has some money to deploy in equity mutual funds, may start doing it now.
“Those who were waiting for an entry point in equities can start putting their money. But, one must know that markets are still over-valued. Nifty is hovering around a P/E of 26.30, whereas, the long term average is 19. Though the gap has narrowed but it is still huge. Therefore, follow a disciplined approach,” says Mittal.
Many mutual fund advisors are repeating to their clients that maximum wealth creation happens only when an investor sticks to his or her asset allocation without paying attention to the daily news, be it positive or negative.