Stock Markets the world over have corrected in the range of 3% to 8 % over the past week and with a good portion of correction coming on Friday… India has also participated in the downfall and corrected by approx. 2% on Friday and 4 to 5% over the past week.… 
As if this was not enough, today (Sat), the premier credit rating agency S&P downgraded the United States from a credit rating of AAA (which is the best rating in the world and that the US had been enjoying for the past 70 years) to AA+ (which is a notch lower than AAA). It is still not a junk status and should not send an alarm bell to the hoarders of US treasury but it definitely raises concern in the financial markets across the world. That is because, till now, the US Govt Bonds or treasuries were considered the safest place to park funds by international investors as they enjoyed AAA, the safest credit rating. With a downgrade, things might not change drastically but it does raise a shadow of doubt on the US economy and also it signals a shift in thinking.

The economic situation in Europe is not something that gives confidence either. As if the financial woes of Greece and Ireland economies were not enough, Italy and Spain are also giving signals of financial turbulence. And unlike Greece and Ireland that in terms of relative size are not that big, Italy and Spain are very large economies and if they are in trouble then the unity & strength of the European Union can be in trouble and hence the future of the Euro. Japan, over the past two decades has had its own set of problems with the recent earthquake followed by tsunami and the resultant economic damage adding to its woes…
The Middle Eastern economies have had their own share of financial and political turbulence… Thus with US, major part of Europe, and even the middle eastern economies fighting with their own financial woes, the only cloud with a silver lining in the world map today are the emerging market economies like India, China , Brazil & Russia.

The last year or two has been a very turbulent year for the Indian economy with record number of scams getting unearthed of unthinkable amounts and proportion.

While this causes some amount of frustration in our minds followed by lack of trust and anger in our democratic system, at the same time we can see a silver lining to this cloud too. Never before have so many top politicians, bureaucrats and business tycoons gone to jail in such short period of time. While I fully agree that there are still many culprits roaming freely out there who deserve to be behind bars, yet, at least some action has been taken by our otherwise sleepy Govt. We can only hope that all of this unearthing of various scams acts as an eye-opener for the current and all future Governments. And that they will be more diligent and uncompromising in the future. However, just visualize this scenario. In spite of all these scams (CWG, 2G, Mining, why do the biggest scams end with g) our economy has managed to grow at a healthy 7.50% to 8.50% per annum over the past many years, the time period during which these scams were actually taking place. This makes India the 2nd fastest growing large economy in the world over the past many years. And this has happened in spite of all the above scams. Imagine what would have been our GDP growth rate had these scams not happened. So, I am not justifying these scams but what I am saying is that they have not dampened our economic machinery yet. Yes, if the Congress still fails to wake up and remains lethargic, then God save them, God save India and god help the world because now, besides Indians, even the world is counting and dependent on India’s economic growth…

Having put things into perspective and hopefully having laid to rest some of your concerns, let me now approach to the main topic on what to do with your investments in these volatile times…

 What to do now with my Investments ?
I firmly believe that for an Indian INVESTOR, every correction in our stock market gives a wonderful opportunity to accumulate equity for your medium to long term goals…

For your short term money ( 1 month to 1.5 years), prefer deb mutual funds that are giving returns in the range of 9.50 to 10.50% per annum.

For your medium to long term investments, nothing beats equity. But remember, buy for the long run and have staying power… You make money in the Stock Market by going against the crowd and not by being with the crowd…
However, you should place your bets very very carefully…that is, be very careful while choosing the Stocks that you bet on…there are fraud companies out there, there are good companies that have fallen into bad times because the sector to which they belong has fallen into bad times and there are great companies with great management but who have borrowed lot more than what they should have and are having difficulty in coping with the exorbitant interest rates on their loans. All the above category companies should be avoided for the time being… So how should you play the current downfall in the markets.
Stagger your equity investments, whether directly in stocks or indirectly via equity diversified Mutual Funds (which I believe should be a preferred route) over the next 6 months…. However, the best option is to invest in well chosen equity diversified mutual funds (preferably with professional help) via the Systematic Investment Plan or the SIP route… if you already have SIPs running in well chosen Equity Diversified Mutual Funds, then, subject to availability of surplus, you should INCREASE your SIP investment in Equity Diversified Mutual Funds (double your SIP investment, if possible). 
If you have still not started SIP investment in Mutual Funds (and I really do not understand why that is the case), Monday morning fix up a meeting with a Financial Planner or Mutual Fund Expert.
The underlying assumption here is that you are an INVESTOR and not a TRADER or SPECULATOR, that you are investing with a medium-term (3 to 5 years) or long-term (5 to 7 years and beyond) goal in mind, ie you are Investing in equity for either your children or for your retirement or for some long term goal in mind. If that is true, then the present market levels and the correction is a wonderful opportunity and a blessing in disguise. If you have the staying power, buy with both hands…

The Pitfalls to avoid:

While I firmly believe that any long term investor should accumulate equity , however avoid the following pitfalls: 
1. Avoid penny stocks or small cap stocks unless you have done thorough research on the company’s fundamentals and promoters and are very sure about the company’s future potential. Even then, these should not form more than 15 to 20% of your equity portfolio.
2. Avoid taking sectoral bets ie Invest in Equity Diversified Mutual Funds only rather than investing in sectoral or thematic mutual funds. Time has shown that even the experts have gone wrong more often than they have gone right on which sectors will perform in the future. Let your fund manager take the call as he is more well informed then most of us.
3. Prefer the Mutual Funds route to equity rather than investing directly in shares unless you have done your research and are thorough with the company’s fundamentals.
4. Avoid buying stocks solely on the basis of TIPS. Tips rarely work and even if they do, you should know when to exit, else you might end up burning your fingers. Also, TIPS might work in a bull run when thinks are fine but are very dangerous in volatile times like these.
5. If your investment horizon is less than 2.5 to 3 years, then avoid investing in the stock market in these volatile times. Enter stick market only if your investment horizon is 3 to 5 years and beyond.
6. Never borrow and invest, especially not in equity or stock market…because the stock market may take time to recover but your interest clock keeps ticking day and night right from day one.
7. Do not put all your money at one go, stagger your investments over the next few weeks if not months
8. Invest a little in GOLD but do not go overboard with it ie; not more than 10 to 15% of your investment portfolio should be in Gold. You can now start a SIP of as little as Rs. 500 a month in Gold Mutual Funds too and you do not need a demat account for doing that.
9. Avoid investing too much in commodities.
10. Last and the most important. I am not very comfortable with F&O Investing. (even though I am a CA & MBA with 10 years of industry experience) . Neither should you be comfortable with F&O.
My Investment Guru, Mr. Warren Buffett (have you read my article on my interaction with Mr. Buffett  ) rightly calls F&O and derivatives, weapons of mass destruction. Need I say more… 

What to do NOW???
Where to invest depends on the following 3 main factors, besides a host of other factors: 
1. Your age and number of your financial dependents
2. Your risk profile (which in turn depends on your current Net Worth and your liquidity situation)
3. Your financial GOALS
Based on the above, you should follow the following investment strategy: 
1. If it is your short term-money (meaning if you need money within 1 to 2 years) then invest in 1 to 2 year Bank FDs if you are in the lower tax bracket or if you are in the higher tax bracket then invest in Debt-based Mutual Funds as they give a percentage return more than 1 year bank FDs and are taxed at a lower rate. But please take professional help in choosing which Debt Mutual Funds to invest your money in.
2. The money that you can let go for 1 to 3 years can be parked in MIPs or Monthly Income Plans of Mutual Funds where you can expect 10 to 11% return and which invest 15 to 20% only in equity or the stock market and the rest in debt markets.
3. Any money that you want to invest for the medium to long-term (3 to 5 years and beyond) should be used to accumulate equity (preferably in equity diversified mutual funds) over the next few months.
4. SIP mode of investing in Equity Diversified Mutual Funds is your best bet in these volatile times…
5. Please take professional help to design your Investment Portfolio…
Remember, it took India 60 years to become a 1 trillion dollar economy and it is expected that over the next decade, India would become a 4.5 to 5 trillion dollar economy…
Imagine this, it took India 60 years or 6 decades to grow to 1 trillion dollars and it is expected that we shall grow from 1 trillion dollars to 4.5 to 5.0 trillion dollars in a single decade. If this happens, immense amount of wealth is expected to be created in our country over the next decade and the best way to participate in this wealth creation is to participate in the equity markets by buying stocks of good companies with excellent track record and great management. Still better, since it is easier said than done to choose good companies, use the Mutual Funds route to equity by doing SIPs in Equity Diversified Mutual Funds. Anybody who intends to become wealthy cannot afford to ignore stocks and/or equity mutual funds…


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