Divide your allocation into two parts, short term (less than three years) and long term (more than three years).
Allocate your funds differently for different financial goals and invest according to your targets.
If your goals are short-term in nature, invest in debt-related instruments and take care that you monitor your funds regularly.
Mid-cap and sectoral funds should not form the part of your core portfolio. Mid-cap funds could fall faster than large-cap funds.
Keep an eye out for lull periods in the market, and there will be opportunities. They allow you to buy into mutual funds at lower prices.
Don't panic during a market downturn. It is neither the end of the world, nor does it mean that what comes down will remain down.
Make sure your portfolio is properly diversified across different asset classes. In this way, your investments will be protected against market uncertainities.
Equity to stay ahead
If you are looking for an investment in equity, we would suggest that your time horizon should be at least three years, if not more. From the perspective of the equity market, the scenario is good.
We can expect a decent return from the market in the coming years. Along with that, we cannot rule out short-term volatility in the market.
But if you are a conservative investor and not willing to take the higher risk inherent in mid-caps, then it is better to stick to large-cap funds. Large-cap funds also invest a part of their corpus in mid-cap stocks to get the benefit of mid-cap rally, which is usually strong.
What an investor can do to lower the risk
Spread risk: Nobody can predict how volatile the market would be. Therefore, diversify your portfolio across equity and debt funds, and stick to your investing plan to protect yourself from unpredictable fluctuations.
Stay invested: You may need to let your money stay invested for a long while, so when the recovery comes you are not left out and are not hit like short-term investors.
Don't chase yields: Only markets tend to have good years and bad, but over the long term, the returns are generally better than those elsewhere.
Keep a focused allocation: Do not get over optimistic about the market. Always keep your greed in control and do a proper asset allocation.
Opt for reinvestment: If you are in a higher tax bracket, the best way is to go for a dividend reinvestment plan because the net return in your hands is tax-free. The return from dividend reinvestment plan and growth plan is always the same.
Short-term solutions: Bonds with longer terms are more risky than bonds with shorter terms. Next year, stick with short-term bonds, which are less volatile.
