I'm stopping my Mutual Funds!
No, don’t just assume this to be a blanket statement. I’m not stopping it completely.
But I am reallocating some of my money to other products.
Sensex and Nifty touched an all-time high this week. And while like everyone else, I’m really excited because my portfolio is also giving good returns, I’m also trying to rebalance my portfolio, and maybe you should consider it too.
Think about it - The global economy is going through a recession. And while India has been insulated (to a certain extent), nobody knows for sure what is going to happen.
Take a look at the history of the Sensex below. Most all-time highs are generally followed by market corrections.
Now, I’m not saying the same will happen this time around. I’m not a technical analyst, so I can’t predict it. Damn even technical analysts can’t predict this with 100% certainty. Nobody can! 😁
But there are two major aspects we should think about:
Markets typically follow bull and bear cycles. We’ve enjoyed a bull cycle for a while now
The global economy is not in good shape, with US, UK and many other countries facing an economic slowdown
“What’s the point of all this?” you ask?
It’s this - If there is a market correction in India, we all could see our portfolio in the red.
But does that mean we should stop our SIPs in equity?
Well..YES and NO.
For long-term goals, just keep doing what you’re doing! Equity is awesome over the long term, so don’t worry too much about market fluctuations in the next 3-4 years.
But if you have a short-term goal (next 1-3 years), you should analyze your portfolio and see if you want to re-balance it.
Here’s what I’m doing.
I’m planning to buy a car in the next year, for which I’ve invested some money in SIPs.
Now I don’t want to take the risk of the market falling and me withdrawing at a loss (and sulking when I click that picture with the giant car key in my hand😛)
So I’m going to withdraw money from my Mutual Fund now, and put it in debt products for the next 8-12 months.
The point is, if you have a short-term goal that you can’t do away with, it’s always a good practice to withdraw your money when you reach your goal (or a few months before it if markets are high) so that you don’t end up making a loss if the market is low.
And now, with a poor global economic scenario and our markets at all-time highs, it’s all the more reason to re-balance portfolios.
Again, don’t get me wrong! I’m not saying you MUST do this. It’s just a risk-management strategy that you can adopt for your short-term goals.
So where do you invest?
Great question. Let’s assume you need 2 lakhs for a vacation planned next year, and you’ve already reached the 2 lakhs. Or you’re probably at 1.8 lakhs.
You can withdraw that money and put it in:
Fixed Deposits: Yeah, they don’t give good returns. But the idea is not to earn returns with this. It’s to protect your money. Look for FDs with small finance banks that can give 6.5-8% and protect your money
Liquid funds: Again, low returns, but they protect your money well. However. liquid funds also carry risks, and you should first understand how they work before investing in them
Bonds: Good options offering higher returns than FDs and liquid funds. Opting for good quality bonds (A-rated and above) can help protect your money and earn decent returns in the process.
Alternate assets: These are slightly higher risk products, but offer higher returns as well. So you can explore these if you want to have predictable, fixed returns
For all the above 4 products, the fundamental idea is that you can get predictable, fixed returns on your investment. This essentially helps you go as per your plan.
Of course, the downside risk is that if you end up investing in a poor quality product (whether liquid funds or bonds or alternate assets), your capital may get eroded.
But that’s why you should opt for high-rated and safe products, even if they offer a lower interest.
How can we help you here?
Well, at Jackfruit, we’ve partnered with a few companies to offer high-rated bonds on our platform! If you’re interested in exploring them, you can simply leave your details HERE, and we’ll get in touch with you to resolve all your queries
Meanwhile, if you have any questions, please feel free to write back to me by replying to this email. I’m more than happy to interact with you guys!
And do share this post with friends so that they know how to plan better!
See you next week! 😁