Amidst all the excitement, there is also a dire need for investors to exercise caution in certain aspects related to their investments; we present a checklist for the same.
1. Deviating from your risk-return profile
Each investor has a risk-return profile that remains unchanged, irrespective of market conditions. If as an investor, hybrid instruments like balanced funds and monthly income plans fit into your profile, then stick to them; there is no justification for getting invested in diversified equity funds.
Rising equity markets should not be an excuse for taking on higher risk.
2. Advisors with a hidden agenda
If your mutual fund advisor advises you 'not to book any profits' or to get invested in avenues contrary to your risk-appetite, then he may not have your best interests at heart.
Steer clear of such advisors and their advice. There is a fair chance that financial considerations are overriding his advice. If you have raked in reasonable returns or achieved your objectives, booking a part of your profits would be a prudent move.
3. Succumbing to greed
The temptation to rake in quick profits can be a strong one, especially in times like the present one when markets
The month of November 2004 saw top performing diversified equity funds clock stupendous returns in the range of 11% to 18%; such performances should be treated as an aberration at best.
How markets will behave going forward is anyone's guess and investors must make their investments only with a long-term view.
4. Making lump-sum investments
Investors who wish to make investments at this stage can do so, but strictly using the systematic investment plan route.
Investments made via the SIP route will go a long way in helping investors mitigate the risks associated with investing at unreasonably high levels; something lump-sum investments are often prone to.
5. Retaining deadwood in your portfolio
There could be a few investments in your portfolio that might seem inappropriate in hindsight; also there is a fair chance that these investments are attractively placed at present due to the rising markets.
Utilise the opportunity to sell off such deadwood at a profit. Don't be complacent while dealing with such investments simply because they look profitable at present.