5 Tips To Help You Manage Investments In Equity Mutual Funds In Over-Valued Equity MarketEstimated reading time: 2 minutes, 30 seconds

5 Tips To Help You Manage Investments In Equity Mutual Funds In Over-Valued Equity Market

Posted on Wednesday, February 28th, 2018 | By IndusInd Bank

The Indian stock market has touched new heights despite an investment slowdown post demonetisation. This rise in the stock market has resulted in a steady increase in the number of domestic investors. More and more people are choosing to invest their wealth in financial instruments as opposed to saving in cash.

Equity mutual funds are emerging to be a popular method of investment as the money from the equities flows into large stocks that carry more weight on the stock market indices. By investing in equity mutual funds, you can acquire gains and build your savings for your respective financial goals.

Here are 5 useful tips that can help you manage your investments in equity mutual funds in the current equity market.

Invest In Long Term

Equity mutual funds prove to be more profitable when invested in over a long-term period of 3 years or more. This is because the performance of equity mutual funds, when assessed over a longer period, shows better results and returns. If you invest for a short-term period, say less than a year, the equity market’s daily ups and downs will not give you beneficial returns on your investment.

Invest Through SIPs

Due to the high valuation of the equity market, corrections are expected but when these would occur cannot usually be predicted. Opting to invest in mutual funds through regular SIPs means you do not have to time or actively track your investments according to the corrections. SIPs ensure regular investments on pre-determined dates decided by you and allow for cost averaging by buying you more units during market corrections.

Invest In Instalments

In case of steep corrections, avoid stopping your SIPs if you have made lump sum investments. Market corrections in an over-valued equity market can be seen as opportunities for creating long-term wealth. By staggering your lump sum investments into instalments, you can reduce your investment cost and arrive at your financial goal that much sooner.

Reduce Portfolio Risk

Investing in equity mutual funds does not mean that you have to stick to your fixed set of stocks, especially when the equity market is over-valued. If your existing portfolio consists majorly of stocks from the over-valued segment, then you can reduce your portfolio risk by investing in under-valued stocks instead. As mid-cap and small cap stocks face a higher valuation at the moment, a large cap stock and a selection of multi-cap stocks can reduce the risk to your portfolio. Scan through your portfolio and remove any stocks that have a high valuation or are over-priced in the current market.

Avoid Changing Asset Allocation

Equity mutual funds remain relatively attractive as compared to other assets such as bonds, property and gold. While it might seem tempting to change your asset allocation in an over-valued equity market, sticking to equities will afford you better returns over a long term.

With these useful tips in mind, you will be able to navigate your way through the current equity market and make the most of the situation.