Investing in the equity markets must always be a planned move to counter any negative market sentiment and increase chances of successful returns. The stakes are even higher in 2014 as the country is going to witness the Lok Sabha elections in the next four to five months. With a chance in the Central government, new policies may get implemented and a new market sentiment may suddenly boost many dormant sectors.
Here are some recommendations that one can do to plan the equity investments for 2014.
Learn more about market environment
Educating yourself on the latest developments and intrinsic details of investing is a good step to usher in the New Year. Irrespective of whether you are a new investor or someone who has been investing for a long time, there is always room to learn and educate about various aspects of investing. In this day and age of global economic sluggishness, the market fundamentals can sometimes behave indifferently. If you have a fair idea about investing and the global economic outlook, chances are that you are more likely to take better investing decisions for all your equity market related investments.
Invest in mutual funds using sip
A lot of people enter the equity bandwagon thinking that they would make substantial gains in a short period of time. While the equity market has given double-digit returns in the past that have been adequate to cover for the rising inflation, unless one knows the market timing the gains can be hard to come by.
The compound annual growth rate or the year-over-year growth rate of an investment has been a roller coaster ride for the past six to seven years. Considering that the Sensex corrected nearly 21 per cent between January 2008 and December 2011 and then rallied 11 per cent till March 2012 and corrected 10 per cent again makes a point for timing the market.
Some people who entered the market in a rally would have made better gains than the ones entering in a bearish phase. Systematic investment plans (SIP) rule out all such timing ambiguity and offers easy investment options as per your choice. Since 2014 is an election year, the daily news and events are likely to trigger the market sentiment one way or the other. In this environment, investing through MF SIP route safeguards against all outside parameters that can drive the equity market sentiment.
Think long-term to play safe in market
The best way to make substantial gains in the equity market is to think long term. Investing is a journey and not a detour. People who understand the importance of investing in the long term are much more successful in the equity market compared to short term speculators.
Considering that 2014 will see a new central government, chances are that any new decisions that the government might take would fructify in the next two to three years. In such a scenario, people investing in equity market in 2014 are better off having a long term investment strategy in place.
Take decisions based on fundamentals
Make sure that all your investment-related decisions this year are influenced by company fundamentals. This year try and learn the basic of reading company quarterly report projections and balance sheets. The more one learns about the fundamental analysis of the company in question, the better the chances of taking a good investment decision.
Keep an eye on news that moves markets
Equity markets can be a high risk affair especially in an election year. Considering that stakes are high for a positive change in the central government, there may be a case of adequate fall in case no party gets a majority in the Lok Sabha elections. As an educated investor, it is essential that one takes equity investment decisions that are in tune with the overall economic analysis of the country along with the basic company fundamental of the investing company.
(The writer is the CEO of BankBazaar.com)
