Stock market rally: Investment moves to stay safe while making gains

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Leading Indian stock indices – Nifty-50 and BSE Sensex – seem to have started their upward journey once again after a brief pause on Monday. The indices touched their life-time highs of 15,835 and 52,641 respectively last week. The momentum appears strong and direction upwards. Whether Nifty 50 will head towards mount 16,000 and when, only time will tell.

However, though these are exciting times for market players, for the ordinary equity investor these are also times that make them nervous about possible fall in the market from their peaks. Here are a few investment moves that can help you make money and take it home too.

Do not sell in a hurry

If you have entered the market early or have been invested for a while there is a good chance that you are sitting on a huge profit pile. Among the thoughts crossing your mind would be whether you should book profits and move out? However, investment advisors say that given the market trend you might lose out on making more gains if you exit lock, stock and barrel.

“Booking profits may affect your returns. There is every possibility that the market would move up from here. If the market moves higher, you will lose out. Many investors made the same mistake when Sensex was at 40,000. They watched the bull run from the sidelines,” Pankaj Mathpal, Managing Director, Optima Money Managers said.

Anil Rego, Founder and CEO, Right Horizon suggests phased booking profit. “At the stage the market is today both getting out too early or late will be a problem. It is better to partially book profits periodically, maybe at every 1,000 points rise. If there is volatility, one can plough back some money,” Rego said.

Cut leverage

If you have been using derivatives to trade in stocks to take advantage of the situation, cut leverage as far as possible. It will help reduce the impact both when the market goes up and down. SEBI has ordered enhancing of upfront margins to allow trades in the market to cool down overheated markets. You should take a cue from this move and cut leverage.

Rebalance your portfolio

Keep a watch on your asset allocation. Your equity portion in your portfolio may have moved up due to the runaway moves in stocks. You may consider moving part of the profit in equities into debt to maintain your asset allocation. “You can move some portion of your equity gains into debt. For example if your equity and debt allocation was split 50:50, but has now become 75:25 due to the rise in stock prices you can rebalance your portfolio,” Mathpal said.

Go the SIP/STP way

If you are worried about your future investments in equity mutual funds at this juncture due to high valuations, then avoid lump-sum investment. Systematic investment plan (SIP) can come to your rescue. You can also park all the money in overnight funds or liquid funds and then order a systematic transfer plan. This will help you to ride out volatility in future. “For somebody who has not entered and or is looking to invest fresh money at this junction, it is a difficult choice now as valuations are high. Fresh money should be invested in a phased manner through SIP or STP,” Rego said.

Bet on balanced advantage

Also known as dynamic asset allocation schemes, these balanced advantage schemes allocate money to stocks and bonds taking into account valuations. If you are worried about stocks, then you can shift some of your money in balanced advantage schemes. Most of them are under invested in stocks at this juncture. However, they can quickly deploy in stocks if the markets were to correct. Thus you need not worry about intermittent volatility.

Go the ETF way

Exchange Traded Funds (ETFs), which are gaining popularity, can be good bets at these market levels. “We are recommending ETFs a lot through low or no-cost brokerage platforms. There are huge choices of ETFs on offer. For example, instead of buying some banking stocks on one’s own, it is better to buy a Banking ETF,” Mathpal said.

Some investors may be better off investing in gold ETF as a meaningful diversification which may help to contain downside just in case the stocks tank.