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Should you book profits now or opt for SIPs? Here’s how to invest like a pro

On 3rd April 2020, the BSE Sensex closed at a 3-year low of 27,590. Its ascent from there has been sharp and relentless. In just 18 months since then, it has more than doubled to close above the 60K mark. Both the Sensex and the Nifty have spent the last 18 months creating new records, breaking them, and then creating newer ones.

However, it is not just the market that has exhibited record breaking behaviour. Parallelly, market participants too have been charting their own course and creating new records. The case in point being the share of individual investors in trading turnover which has grown sharply from a mere 33 per cent in 2016 to a formidable 45 per cent in 2021. Correspondingly, 10.7 million new demat accounts were opened in between April 2020 and January 2021, breaking all records and surpassing the number of new accounts opened during FY20 and FY19 combined.

This creates a classic chicken and egg conundrum. Have retail investors plunged into the market lured by sharp gains or has the equity market gone up due to increasing retail investor participation?

Whichever lens you view this from, there is no denying the fact that the market has gone up over the last 18 months and there is a clear and massive shift in the market in terms of retail participation. However, now that the market has witnessed a stellar rally, many investors are wondering how they should position themselves for the future.

Here are a few points to consider if you are looking to create an investment strategy in the backdrop of the prevailing investment landscape:

Do not wait for the right time

In the world of investing, there is no such thing as the right time – only the right investment. India is a long-term structural growth story which is likely to play out over the next decade. If you are already invested in the market, then it is best to stay invested and reap the long-term benefits of the India growth story. In the short-term, it is very easy to get influenced by market noise and rely on tips from ‘well-meaning’ friends. Be judicious in your investment selection process – assess the multiple investment avenues through which you can gain exposure to equities. These can include index funds, balanced advantage funds, or SIPs in select large and midcap stocks.

Invest in a staggered manner through SIPs

Inarguably, when markets are creating new highs, it can be difficult to go ‘all in’. After all, market volatility can shave off acquired returns and nudge you into making sub-optimal investment decisions. In order to combat this, you should participate in a staggered manner through SIPs. If you get your equity exposure through equity mutual funds, then the best thing is to invest in these funds via SIPs. If you already have SIPs set up, then you must not stop them – instead you should continue existing SIPs and also start new ones or top up the current ones. SIPs can come to your rescue even if you prefer to invest directly in stocks. Identify quality and resilient stocks that are likely to benefit from the India growth story and then invest a certain amount of money every month in purchasing these stocks. This way you end up doing a direct SIP in stocks and can participate at all price levels. As a result, you can reap the benefits of rupee cost averaging and compounding over the long-term. SIPs will also help you mitigate the impact of emotions and behavioural biases in the investment decision making process.

Adhere to your asset allocation strategy

Your asset allocation strategy is the core of your portfolio. It takes into consideration your risk-return objectives and ensures that your portfolio is well-aligned with your requirements. Your asset allocation strategy will dictate how much you allocate to equities and also indicate when equity exposure is getting too high for comfort. It is at this juncture when you can consider rebalancing your portfolio to bring it back to your original allocations. Always remember that you should redeem or exit your equity investments only when you have achieved your specific goals; else, you need to sit tight and let the investment grow.

Just like retail investors are advised to continue investing through market downs, even in the current environment, it would be best to continue investing while staying tethered to your asset allocation strategy.

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