We have all seen the market run-up this year, especially the rise of the last two weeks.
The BSE Sensex has risen from 17,555 on April 01st, 2010 to 19,900 on September 17th, 2010, and is expected to climb further. That is a 13.39% jump in half the Financial Year.
We are currently in a sweet spot – with high markets (Sensex closed at 19,906 today) and high interest rates as well (due to the recent hike in the Monetary Policy Review, 1 Year FDs are currently between 7 and 8%).
If you have financial goals that are coming up in less than 3 years, you should be checking your goal portfolio and rebalancing between equity and debt based on your goal time horizon, to either build your wealth or to protect your wealth, depending on how far or near your goal is. So if your goal is less than 3 years away, you can redeem from equity, and invest into fixed income, and in a way get the best of both worlds.
For the Short Term Investor: Goal less than 3 years away
At this time, you need to protect the wealth you have built for your goal.
Any investments you are doing for a goal that is less than 3 years away, should be into debt funds and fixed income instruments such as bank or corporate FDs.
With the market run up in the last few weeks that we have witnessed, it is advisable to exercise caution especially with new investments that are being done for a goal where you will require the funds in less than 3 years.
For the Medium to Long Term Investor: Goal 3 – 10 years away
Depending on how far your goal is and your risk appetite, you should have between 45% and 70% of your goal oriented funds going into equity mutual funds. If your goal is closer to 10 years away, you can have a higher proportion of your goal oriented funds invested into equity mutual funds and lesser proportion into debt mutual funds. If you goal is closer to 3 years away, you should do the reverse –
Invest a higher proportion into debt mutual funds, and a lower proportion into equity mutual funds.
Your debt component can be invested into funds such as MIPs and long term income funds, to balance the goal portfolio.
For the Long Term Investor: Goal more than 10 years away
If you have more than 10 years left to your goal, you can focus on building wealth for your goal – invest into equity mutual funds. Don’t try to time the market, you can invest via a Systematic Investment Plan and avail cost averaging over long time periods.
If you have a lumpsum to invest into equity today, we recommend you stagger it i.e. do not invest all in one shot. There is always a risk of market volatility when investing in equity, stagger your investment to reduce this risk.
Also remember, whether you are investing based on a Financial Plan or not, now is a good time to re-jig your portfolio – have an expert check your portfolio to see which funds are good for you and should be held, and which are no good and can be redeemed now that they have risen. Do a full mutual fund portfolio review. Your portfolio will benefit from it.
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