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Stay invested, bank on fixed deposits, gold

With the crash of the global financial system and the Sensex doing a 900 point yo-yo, retail investor’s money is going for huge notional loss. Sandeep Singh reports.

business Updated: Oct 09, 2008 00:55 IST
Sandeep Singh

With the crash of the global financial system and the Sensex doing a 900 point yo-yo, retail investor’s money is going for huge notional loss. The loss remains notional till the time investors sell their shares. And this, say experts, is not the time to exit from the market. Investors should stand by their investment horizon and stick to their portfolio.

Expert speak

As the interest rate cycle is likely to turn, investors should invest in fixed maturity plans of mutual funds and bank fixed deposits

They should keep cash so as to be able to buy equities when they turn

Existing equity investments should not be sold and new equity investments should go into bluechip firms in a staggered manner

Gold should be looked as another investment option

Experts also say that the best new investment option to help investors sail through these volatile times is buying fixed maturity plans (FMP) of mutual funds and fixed deposits of banks. They also suggest keeping cash --- liquidity --- in hand, as when the market does turn, it will present many opportunities to invest.

“The interest rates have peaked out and they are likely to turn,” said Anup Bagchi, executive director, ICICI Securities.

“It thus makes sense to invest a part in FMPs because it is unlikely that one would get these kinds of interest rates.”

“In times of crisis, liquidity is the king and it is better to sit on larger cash allocations,” said Aseem Dhru, CEO, HDFC Securities.

While debt has emerged as the best option for now, equity markets too have become very attractive as most chips are available at less than half the valuations they commanded ten months ago.

Experts also feel that it is time for investors to stand by their invested equity and they should buy blue chips for fresh allocations and that too in small portions in a staggered manner.

“All new investments should be done keeping a long-term view in mind, through a portfolio of diversified large stocks,” said Sudip Bandyopadhyay, CEO, Reliance Money.

The daily volatility of several hundred points should not come in the way of long term investors. “It should not bother retail investor as he has invested for the long term,” said Bandyopadhyay.

However, equity investments should be limited. “Not more than 20 per cent of fresh investment should go in equity,” said Dhru.

Rising gold prices in the wake of a weakening dollar have made gold an attractive option. Gold is replacing dollar as the preferred reserve for most of the central banks, thus raising the demand.

“The fall in equities should result in an upward movement of gold prices,” said Bagchi.

However this investment should be limited, “Correction will happen in gold price when the stock market recovers,” said Bandyopadhyay.