How to deal with stock market volatility?
A stock market drop can be an unnerving experience at any stage of life. It could have a financial as well as an emotional impact on the investors. Many investors tend to get baffled and take haphazard decisions to ensure the safety of their investments. But, if anything needs to be avoided in such a situation, it would be taking haphazard decisions. What is the best way to deal with it then? Well, let’s first understand what exactly volatility is and then move to steps how you can deal with it efficiently.
What do you mean by volatility?
It means a sudden rise or fall in the market or any such security in a short tenure. It can be measured by standard deviation of return which means the amount of variation or deviation than expected. This causes heavy trading and wide price fluctuations. Everyone either tends to buy or sell in a volatile market.
How can you deal with it?
Stay invested: Don’t let short-term losses take over the better you. Avoid taking decisions in the spur of the moment and stay invested. Focus more on your long-term goals and don’t let the daily imbalance have an impact on your returns. Planning for future might help you gain as well.
Don’t abort your plans: A sudden movement in the market might have different implications for those who just started investing and other professionals. Don’t change your investment strategies by hitting the panic button every single time. Reassess your goals, time to achieve and your plan to ensure that you are still on the right track. The idea is to change course when needed rather than to abort the mission.
Diversify assets: The best way to deal with stock market volatility is to diversify your assets. Help your portfolio to modify according to the need of the hour. A good mix of equity and debt funds can give you a more balanced approach than just going all equity in such market. Ensure you have your safety net in place before you plunge into the volatile market.
Do an active risk management: Desperate times call for desperate measures, they say. Don’t indulge into passive investing at such volatile times. Take the control in your hand to drive your investments towards growth. Adjust your investment portfolio on the basis of your risk tolerance. This would make you money as well as secure your future if the market decides to crash abruptly.
Consult your financial advisor: Talk to the professionals when you feel things are getting a little out of your own hands. Financial advisors can guide you by assessing your portfolio with other factors and suggest steps you need to take. They can also help you with a detailed financial plan if you wish to take some help in that as well.
Some other factors that would help you survive the volatile markets include:
Ensuring that all your essentials are insured or covered
Having cash handy as a shock absorber if markets crash
Having a strategic plan with reference to your investment income. This could mean creating a withdrawal strategy too
Adjusting your withdrawal rate that helps you navigate through the downslide in the market
Having backup temporary income sources as alternatives handy
To sum it up
Stock market volatility is a part of the market and there is nothing that you can do to avoid it from occurring. But with these tips, you could certainly try to protect yourself and your investment from losses as far as possible.
Best Investment Options for Fixed Returns
The financial needs and priorities of every individual are different. Also, the risk taking ability of every individual differs. Some individuals might have a higher risk appetite, while some may not be willing to take any risk at all. For individuals who have a low risk appetite, fixed return products suit them the best.
Here are some of the smart investment options for fixed returns:
Fixed deposits are offered by banks at attractive interest rates. FDs are offered to investors for a period as low as 7 days up to 20 years. Fixed deposits offer higher returns than a savings bank account. At present, FDs are giving a return of 6-6.75%. The returns vary from one bank to another.
Bonds are loans which an individual makes to the government and large organisations. The government and companies issue bonds in order to raise money. The principal amount along with the interest is given back to the investor at a future date as per the agreement between the two parties. A lot of people are under the wrong impression that one cannot sell bonds until maturity. However, one can buy and sell bonds in the open market. At present, bonds are giving an interest rate of 7-7.5%.
Public Provident Fund
Public Provident Fund (PPF) is a type of investment which is provided by the Government of India. PPF comes with a lock-in period of 15 years. The rate of return provided on PPF changes as per government policies. At present, PPF is providing a return of 8.1%. Amount invested in PPF is also eligible for a tax deduction under section 80C of the Income Tax Act.
National Savings Certificate
NSC are bonds issued by the government for small savings and one can purchase these bonds from post offices. The interest rate on NSC is decided by the government every year. It is linked to the yield of 10-year government bonds. The current interest rate is 8%. The lock-in period for NSC is 5 years.
Best Performing Tax Saving Mutual Fund for 2016-17 - DSP BlackRock
With the financial year end coming closer, a lot of people are seeking financial advice from tax planners and chartered accountants in order to save as much tax as they can. Equity linked savings scheme (ELSS) is considered to be the best tax-saving mutual fund and it has given exceptional returns over the years. While there are a lot of tax-saving mutual funds available in the market, only a few have managed to attract the attention of investors by giving higher returns. One such fund is DSP BlackRock Tax Saver Fund.
Launched in the year 2007, DSP BlackRock Tax Saver Mutual Fund has given returns of 13.83% since its inception. The primary objective of this scheme is to generate medium to long-term capital appreciation from a diversified portfolio that is substantially constituted of equity and equity related securities of corporates, and to enable investors avail of a deduction from total income.
DSP BlackRock Tax Saving Mutual Fund has outperformed its benchmark Nifty 500 and its category returns over a 7-year period.
|Trailing Returns (%)|
*Source: Ace equity
The fund is managed by Rohit Singhania and the total assets under management of the fund stand at Rs. 1,494 crore as on 31st December, 2016. Majority of the fund’s corpus i.e. around 75% is invested in large-cap stocks. As far as the sector allocation is concerned, the fund has a higher exposure to the banking sector. The fund comprises a total of 68 stocks in its portfolio. There is no exit load that one has to bear if he chooses to redeem his investments.
While DSP BlackRock Tax saving Mutual Fund has been performing consistently over the last few years, it is advisable for investors to consult their financial advisors before making any investment decision. It is very important that the objective of fund should align with individual risk profiles.
Invest in Mutual Funds only after knowing the Basics
Mutual funds have become a popular investment over the last few years. Mutual funds give an investor a lot of exposure to different sectors and industries without letting him pick an individual stock. Mutual fund is an appropriate investment option for a common man as it offers a diversified and professionally managed portfolio of securities at a relatively lower cost. However, it is very important to know the basics before investing in a mutual fund, which will help you make better investment decisions.
What are the different types of mutual funds?
Mutual fund schemes vary based on their structure and investment objective. - By Structure
Open-Ended Mutual Funds
An open-ended fund is the one which is open for subscription throughout the year. An investor can buy and sell the units anytime as per the net asset value (NAV) at that time. Also, these funds do not have a fixed maturity period.
Closed-Ended Mutual Funds
A close-ended fund is the one which is not open for subscription throughout the year. An investor can invest in such funds only during the new fund offer (NFO). Thereafter, they can buy and sell the units after the fund is listed on the Bombay Stock Exchange (BSE).
- By Investment Objective
Growth Mutual Funds
Growth funds are for investors who want to invest for a longer period of time. These funds aim to provide capital appreciation over medium to long term. Majority of the corpus of such schemes is invested in equity.
Income Mutual Funds
As the name suggests, the aim of income funds is to provide a regular income to its investors. These schemes usually invest in fixed income securities like bonds and government securities. As these funds invest in fixed income securities, risk is lower than that in a growth fund.
Balanced Mutual Funds
A Balanced funds aim to provide both growth and regular income to its investors. These funds invest a part of their earning in both equity and fixed income securities. These funds are ideal for investors who are looking for a combination of regular income and growth.
What are the different plans that mutual funds offer?
Mutual funds offer two investment options - growth option and dividend option.
Growth Option in Mutual Fund
Under the growth option, all profits made by the fund are invested back into the scheme. An investor does not receive any intermediate payments in the form of bonus and dividends. An investor gets returns only on selling the units, which is determined by the net asset value (NAV) of the scheme. Under growth option, the NAV of the fund increases over a period of time which helps in capital appreciation, thereby giving you more returns.
Dividend Option in Mutual Fund
Under the dividend option, an investor receives regular income at periodic intervals in the form of a dividend. In this option, whenever the NAV of the fund reaches a certain level, the fund distributes the profit to its investors as dividend. Hence, the NAV of the fund does not change drastically at the time of selling the units. Also, the power of compounding is less in the dividend option.
Union Budget 2017: Stocks to look out for!
With less than a week left for the Union Budget to be announced, there is a lot of curiosity related to the impact it will have on stocks. The government is likely to announce a reduction in the corporate tax rate, which is a positive sign for companies. Here are five stocks that one can consider investing in ahead of the Union Budget 2017.
Power Grid Corporation of India Limited
Power Grid Corporation of India is a Navratna company which owns and operates ~45% of India’s power transmission network. Revenues of the company are expected to grow 17% YoY in FY17E. The project execution momentum is also expected to sustain beyond FY17E, given a strong pipeline of projects worth Rs. 1.44 lakh crore that are likely to commission over the next 4-5 years. PGCIL is expected to show an earnings growth of 20% over FY16-19.
Budget Impact: The power sector is all set to witness revival on account of government support to increase availability of power. Power Grid Corporation of India will be one of the beneficiaries in the power sector.
Dewan Housing Finance Corporation is one of India’s largest housing finance companies. It largely caters to the self-employed segment (40% of total AUM) and has around 353 branches. It generates revenue from interest earnings on housing loans. The company recently issued NCDs worth ~Rs.10,000 crore which are expected to reduce cost of funds by 40bps over FY16-18E. The management plans to channelize these funds to Affordable Housing schemes in Tier II/III cities. The company is likely to witness earnings growth of 24% over FY16-18E.
Budget Impact: The government is expected to increase the tax deduction limit for housing loans which is Rs. 2 lakh currently. This will encourage more people to buy houses. DHFL will be a major beneficiary of this announcement.
NTPC, a Maharatna company, is the largest energy conglomerate in India with a capacity of 47,228 MW. NTPC is one of the most efficient players as it has 18% of national capacity but generates 24% of the power consumed. Out of 10 captive coal mines allocated by the Central Government, in phase 1, NTPC is developing 5 coal blocks which are 30-35% of NTPC’s current coal consumption. This will bring down generation cost and improve plant load factor. Company’s superior operational efficiencies (FY16 PLF of 79% against the industry average of 62%) give it a competitive edge. It also benefits from proximity to coal mines and lower fuel costs. The company is expected show a earnings growth of 8% over FY17-19E on account of improved operational performance.
Budget Impact: The government is expected to provide clarity in a positive way on the extension of 80 IA holidays for atleast 2 years. Moreover, domestic energy producers will benefit from government’s focus on energy supply to support the infra-sector.
Hindustan Petroleum Corporation Ltd
HPCL, a Navratna company, is a leading oil and gas refining and marketing company in India. It operates two major refineries producing a wide range of petroleum fuels in Mumbai and Visakhapatnam. The rising crude oil supplies will increase discounts being offered to the refineries, thereby adding to the refining margins. HPCL is expected to be a major beneficiary from this. The company is likely to witness earnings growth of 15-18% through FY17-19.
Budget Impact: The government may cut the excise duty in this budget, given the rise in crude oil prices. HPCL will be a major beneficiary if this announcement comes.
CESC is a RPG Goenka Group company with presence in generation and distribution of power. CESC has received transmission access for the Noida PPA. It has received transmission access of almost 170 MW which will be operational from April 2017. Lower fuel costs and efficient energy sourcing from Haldia plant will improve the company’s margins. The company is likely to witness 26% earnings growth in the next two years.
Budget Impact: The power sector is all set to witness revival due to government support in order to increase availability of power. CESC will be one of the beneficiaries in this space.
Union Budget 2017: What to expect?
The age old tradition of announcing the budget on the last day of February has been advanced by a month to February 1. This move will speed up the financial planning process for the upcoming year and the government will also get more time to implement all the financial decisions by April 1. Moreover, another change that has been made is scrapping the practice of announcing a separate Rail Budget altogether. The Cabinet has decided to merge the two budgets and announce it on the same day.
The Indian economy is reeling from the after effects of demonetisation and hence this budget holds a lot of importance. Let us have a look at the economic outlook for 2017-18.
The GDP is expected to grow at 7.5% in 2017-18E and will be supported by growth in agriculture and recovery of private investment in the medium term.
The CPI inflation is estimated at 4.5% in 2017-18E, given a normal monsoon and increased food supply.
The fiscal deficit is expected to come down to 3.4% in FY17-18E on account of the increase in excise duty on oil and petroleum products which will help in narrowing down the deficit gap.
The government is expected to bring in a lot of new reforms along with stable commodity prices. The subsidy is expected to be restricted at Rs. 230k crore.
Here are 4 major announcement that a common man can expect from the Union Budget of 2017:
Revision of Tax Slab Rates
Demonetisation had a lasting impact on the common man. In order to provide some relief to the aam aadmi, the government can increase the current tax exemption limit from Rs. 2.5 lakh to Rs. 4 lakh. Moreover, the government can also consider revising the slab rates.
Allow higher deduction for interest paid on housing loan
The real estate sector has faced the brunt of demonetisation in a big way. Sales have declined substantially over the last couple of months. The real estate sector contributes to the overall growth of the country substantially. So, it is very important that this sector revives sooner. One such way to boost this sector is to allow higher deduction on home loan EMIs. At present, the tax deduction available for interest paid on home loan is Rs. 2 lakh. The government can consider revising this limit from Rs. 2 lakh to Rs. 3 lakh, which will help the real estate sector to revive, which in turn will also provide a boost to the banking sector.
Increase deduction under Section 80C
At present, the total deduction allowed under this section is Rs. 1.5 lakh. It is expected that this limit will be increased to Rs. 2 lakh in this Union Budget. This will encourage savings among households.
Reduce Corporate Tax Rate
The Finance Minister is likely to announce a reduction in the corporate tax rate from 30% to 25%. Reduction in corporate tax will attract more investment in the country, thereby leading to an overall economic growth.