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Your Money: Tips to navigate stock market volatility

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By A P Singh & Pallavi Seth

Volatility brings unpredictability with itself and the turbulence makes investors nervous about their investment in the stock market. While investing, remember you are buying a company and not a stock. So look at the reputation of the management, the demand for the company’s products and the financials of the company.

Stay invested for the long term
Stock markets are for long-term investment and not for short term. Map your long-term goals with a minimum time-frame of five years, and in times of volatility, ignore the noise and stay focussed on your plans. Most investors attempt to time the market whereas the time spent in the market is more important.

Diversification is the key
Evaluate your portfolio and do the rebalancing in the asset mix. As per your age and risk appetite, invest in equity, debt or balanced funds. If one is near the age of superannuation, the exposure to equity should be 50-60%. A rebalancing act is required to bring the off-track portfolio within the set strategy of asset allocation.

Invest in SIP, STP and booster STP
With SIP you don’t need to worry about market volatility due to average costing and power of compounding. Systematic transfer plan (STP) is a variant of SIP that provides investors an opportunity to transfer a fixed sum at regular intervals from one scheme to another with the same asset management company (AMC). This facility helps investors to rebalance their investment portfolio by switching seamlessly between different asset classes which will reduce volatility and help to achieve the desired financial goals.

A booster systematic transfer plan (STP), is where unit holders based on market valuations can opt to transfer variable amounts from one source scheme to a designated target scheme at defined intervals. The unitholder is required to provide a base instalment amount that is intended to be transferred to the target scheme. In booster STP, the instalment amount can vary from 0.1 times to five times of base instalment amount based on equity valuation index.

Invest as per your risk appetite
Those who have a low risk appetite should avoid small-cap and mid-cap funds. People with high-risk appetite can take advantage of small cap and mid cap funds and get higher returns in the short run. Some people try to encash the opportunity in a bearish market by buying in dips, but no one can predict the real bottom of the market. So, ideally, be disciplined and do not get disturbed by the ups and downs of the market and remain invested for five to seven years.

(Singh is director and Seth is assistant professor, Amity School of Insurance Banking & Actuarial Science)

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