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Oct 09, 2008 at 12:34am IST

Market meltdown: Experts advice on investment

The market's blows are only getting harder. The bad news is that the worst may not be over yet. Amidst all this turbulence, only one thing can save you: The right advice.

Here’s how you can limit the damage, straight from Wealth's experts.

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Scenario 1: I invested in the markets for the short term; what should I do now?

MARKETS IN RED: The Sensex clawed back, recovering nearly 600 points from its morning fall.

Right now, the markets are driven by global sentiment. Financial planner Arvind Rao reckons that it may take up to the fourth quarter of 2009 for the global market to pull up.

ALSO SEE Six tips for small investors when markets fall

On the domestic front, too, things may look brighter only in the third or fourth quarter of 2009. "This is mainly because of the huge input costs and high interest rates as of now," he says.

In such a scenario, you have two options:

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Option 1: If you are hard-pressed for money, you have no choice but to withdraw.

PV Subramanyam, financial domain trainer, says, “If you need money soon, say in a year or two, it is better to sell now even if that means booking losses. There’s no way of predicting how the markets would behave.”

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Option 2: Sandeep Shanbhag, investment expert and Director, Wonderland Consultants, says, “If you initially invested for the short term but can weather the storm, then wait, provided you have fundamentally good stocks. However, if you need funds, then exit as early as possible and treat this as a mistake not to be repeated.”

Caution: Do not play the markets on a short term basis simply because of the looming uncertainty.


Scenario 2: I am a long term investor: What to do now?

To begin with, relax. If you have invested, you should continue doing so. India has a number of things going in its favour:

  • Among all emerging economies, our export to GDP ratio is the lowest. Consequently, even a full blown US recession will shave only around 40 to 60 basis points off our GDP growth rate, which was a healthy 7.9 per cent for the first quarter. Our economy is fundamentally strong; the situation right now is nothing but a slowdown and it will recover soon.
  • Commodity prices have started to decline, with oil last being traded at USD 90 per barrel. So, going forward, inflation will not be a big threat.
  • Our regulators, SEBI and RBI are proactively taking measures to control the situation and ease capital flows into India.

Sanjay Matai, financial advisor, says, “Long term investors need not worry. In fact, it’s a good time to invest since stocks, expensive at one time, are now available at huge discounts.”

Strategy: You can file away a proportion of your money for the long-term through SIPs. If you are single and salaried, put 70 per cent of your money in large cap stocks and the remaining 30 per cent in mid cap stocks.

Shabhag suggests that this is an ideal time to average out and make piecemeal investments on every fall. "You can invest around 20 per cent of investible funds into equity / equity MFs. Another 20 to 25 per cent of your surplus can be invested in gold through gold exchange traded funds (ETFs)."

There’s a simple theory behind investing: You invest your way up, and you invest your way down.

What not to do

  • Don't enter the market for a quick buck.
  • Don't look at borrowings for a while, since interest rates are quite high. Especially stay away from borrowing to invest in volatile assets like equities or even property.
  • Avoid investing in Unit Linked Insurance Plans (ULIPs) if you do not understand the scheme in detail.
  • Don't invest in lump sum.
  • Don't stop your systematic investment plans (SIPs), because market fluctuations can average out your losses with SIPs.

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