At present, NIFTY is at all time high. Gold is only 2-3% away from record highs. If we look at bond market, due to rate cuts, it has perfomed well and given 10-12% returns this year. Real Estate is booming as well.
I guess this is one of few times it happened that all of the major asset classes (Crypto I dont consider) are at record prices and investing in them looks risky. So, the main question is where to invest then?
now is the best time for a step-up sip, if you have sufficient money and patience. rotation across asset classes is great, but rotating strategies is even better.
what does it mean-
rotation across asset classes is great, but rotating strategies is even better.
Go for tata multi asset and bajaj finserv multi asset - they are very safe in downward market also
if you fear go for icici all season bond fund
its good to diversify our investments across different types of assets like stocks, bonds or whatever but its even more important to switch between different investment or trading strategies based on the market situation. rather than just focusing on what to invest in, it’s better to adapt how you’re investing. “rotating strategies” refers to adjusting the approach (like using a step-up SIP) to fit the current market conditions especially when everything is at an all-time high.
so an easier way to say this would be - it’s good to change what you’re investing in, but it’s even better to change how you invest based on the situation.
In such situations one might want to keep moderate SIP in booming markets, and extra funds in parag arbitrage or edelweiss crisil debt index fund to be invested when there’s a correction.
but most likely the fund managers are also following this strategy and have extra cash parked for later deployment.
So either both of are right on timing the market which is rare
Or one of you is wrong which negates the benefit.
Or both of you are wrong so you lose.
This is a good question. I too have similar concerns.
Diversifying internationally is a good option. ASEAN and Japan seem promising to me at the moment and there are Indian mutual funds which you can use to invest there. Also, Arbitrage funds is a good asset which does better the greater the volatility in the market.
Looking inside a lot of Domestic Mutual Funds, I see them holding onto 10-20% cash. This seems high and as a result has also pushed the yields on debt instruments to fall. The US’s interest rate cut also adds to this.
There aren’t a lot of other alternative assets which retail investors like us would have access to. Most of the “uncorrelated” return assets are behind gatekeeper laws to protect the retailers.
One last option I would recommend is to look into Buffered ETFs. They don’t exist in India, but you can basically simulate one. Buy a TBill + A Call option. So essentially what happens is, if the market goes up, you make money. If the market goes down, you get all your original capital back with no losses. ie if you put 100rs and Nifty is up 10%, you get 110rs but if it’s down 10% you get back original 100rs. It isn’t magic tho. You are also capping your upside, so if markets go up like 30-40% you lose on some potential profits but I think given the current situation, this is a fantastic hedge. PLUS incase of a crash, you can ditch the position and just buy stock.
Could you please explain some more with one example? Are you saying to buy a tbill and pledge it to buy the call option ? Or are you saying do both independently but balance their allocation equally ?
Absolutely no!
Assume you have Rs. 100 to invest. You can buy Nifty ETF worth Rs. 100. So if Nifty goes up 5% you get Rs. 105 and if Nifty goes down 5% you get Rs. 95.
Now what you can do instead is:
Buy a TBILL for Rs. 95 dated for 364 Days. Meaning in 364 days, you will get back Rs. 100, guaranteed. Using rest of Rs. 5, you can invest in a Long dated Nifty Call options with a good amounts of leverage.
What this will result in? If nifty goes up, you get the upside from call option, if nifty goes down, you get your original Rs. 100 back from the TBILL. The problem with this kind of trade is that you have 0 Downside but in return for that, you have capped your upside. A Rs. 5 option cannot perfectly mimic the returns of a Rs. 100 stock purchase.
But when the markets are at an all time high and you fear the bear market might take over soon, this is an excellent strategy.
If you did this 2 weeks ago, for a 15 day timeframe, while nifty has fallen 5%, you would’ve gotten your money back in full. And then you could’ve invested it in this struggling market!
Also, to be clear, the worst-case “zero-downside” is effectively a loss.
One has made less than the rate of risk-free return.
In the above hypothetical scenario,
simply investing in a T-Bill without any of these other complications,
would have given 100 + 5.
True. If factoring in the time value of money, but that is what you’re giving up for downside protection.
If you invest in the T-Bill, you could ONLY make the 100 + 5. In this situation, if the market goes up, you can make more. If the market goes down, you have your downside protected.
You can play around with a slightly risker bond to help make up the risk free return too, but in that case, it’s not risk free anymore. You’ll be taking on the risk of the bond.
This is a highly complex structure and I think only people who know what they are doing should play around with it. Despite studying for the CFA, I don’t construct these myself and make use of ETFs which do this internally.
Thank you very much for the detailed reply.
Would buying a call / put option considered as a business income under Indian income tax laws? most of the employers would prohibit or forbid employees doing the business, though i am not sure if that’s via the investing route or if they would actually monitor the ITRs.
This couldv’e been easier if India allows leveraged ETFs without all this gymnastics.
Well atleast one asset class is down by around 8% since this post