Indian stock markets have touched a new peak while equity funds deliver stellar returns. But don’t throw caution to the wind
The one beauty of this broad-based market rally is that all those people who have entered early in the game last year have struck a pot of gold for themselves, depending on how much and where one has invested. For instance, if you small caps funds were in your portfolio this time last year, you would have been sitting pretty on a sizeable run you in your fortune to the tune of 48 percent on average.
But some others who have been on the fence are now feeling left out as they have not participated in the wealth journey. If this is how you are feeling too, watch out!
At these levels, you should not throw caution to the wind, but take only calculated risks. Equity funds have made money for investors, but from now on, the gains are not going to come easy. Here are the three key things you should not be doing when you are investing in funds right now
DON’T LOOK AT PAST RETURNS
If you will look at the rosy past returns, you might be tempted to think equity funds will give the same kind of returns. And it’s that time of the year when the newspapers and media show the stellar returns of the past. That will be a foolhardy thing to do. The past returns will not necessarily result in similar returns in the future. So watch yourself on that score.
DON’T INVEST BIG MONEY
It’s also not the time to take big risks in equity funds right now. One big reason: equity prices are now trading at lofty valuations of 27 percent for the Sensex stocks.
Valuations of mid- and small-caps are sky-high. The BSE Mid-cap index is at a PE of 47, while BSE Small-cap index at 117. This is exorbitantly high. So, if you are planning to invest, ensure that you stagger your investments in installments or slowly.
DON’T GET INTO THE FEAR OF MISSING OUT TRAP
Sure, lots of wealth is built over the long-term, but if you are buying at high prices, it will take longer for you to generate wealth on your investment. Equities as an asset class generate good wealth only if you buy them at low or cheap prices.
At this juncture, it will take many more years to generate a good return on your investment.
DON’T FORGET TO BOOK PROFITS
On the contrary, the time is ripe for you to pluck the fruits of your labour. If you have been fortunate enough to enter early, take the moolah back home and invest the funds into some liquid or short-term debt funds. There’s no harm in booking some profits, even if you are in the game for the long haul.
