Savior of Retail Investors in Stock Market…. Corona impact

Indian stock markets were following global recession signs and sudden eroding of investors wealth came as Corona pandemic. Every session of stock market became evident of falling shares, equity mutual funds, wealth management schemes and related products; what can be savior strategies:

• Investors shall understand performance of their invested stocks / mutual funds, vis-à-vis NIFTY; and justify over-performance / under-performance of their investments.

• Nifty has corrected by 35% due to Corona virus Impact, from Nifty 12,430 in January 2020 to 8,080 in April 2020; providing long term opportunity for Equity investors. Nifty (at level 12,430) was trading at PE/28 which was considered Over Valued by Historical average. Now at 8,080 Nifty PE/18, seems fairly Valued in terms of emerging Indian economy and long term Investors shall remain prepared to take entry at Current valuation levels.

• In stock market, it’s difficult to predict bottom fishing; hence STP option is recommended. Your money may remain parked in a Liquid fund. From Liquid fund every week/month Money is transferred to Equity funds. This way you get benefit of Rupee Cost Averaging and Equity exposure at every Market level uniformly over a period.

• Incase retail investors need tax savings on investments, then ULIPs are the only safe and steady return providing instruments in stock markets; rather than PMS or Mutual funds, direct entry; which is taxable in India context. After a period of 5 years, investors can earn tax free annual income from ULIPs every year by way of partial withdrawals till policy Term. Premiums paid in ULIP having benefit of income tax sec. 80-C and partial withdrawals are tax free. Maturity fund value is also tax free under income tax sec. 10. 

• Corona pandemic has shown abnormally high volatility index, and taught lessons to remain balanced investor; wherein we shall recommend investing in Balanced Fund (creator fund), composition of 65% Equity & 35% Debt allocation and Asset Allocation Fund which increases exposure to Equities in falling markets & books profits in equities in rising markets, which can secure 10% and above cagr on longer horizon. 

• Investors shall remain in touch with stock market so can switch from Equity to Debt funds, Equity to Liquid funds online. Investors can also avail option of investing 25% of total fund in 4 different fund schemes, instead of 100% in a single fund/ single scheme only. Watch shall also be kept for mutual fund charges and fund expenses, which may remain between 2.2% to 2.95% yearly on entire fund value.

by :

CA Yogesh Birla

Director
Birla WP Management
visit us at : www.YogeshBirlaCA.blogspot.com