Market Turmoil: Word of caution for investors

Worry and nervousness have gripped investors worldwide. With the outburst of sub prime issue in the United States leading to a re-pricing of risks, markets have witnessed a secular sell-off all across the world.

The clouds over the markets are not yet clear and experts are expecting and estimating more damages. Moreover, reported unwinding of Yen carry trade has added fuel to the fire.

A sharp decline is being observed in all asset classes.

The state of economy in India too is undergoing a political crisis as the Left parties have threatened to pull down the Congress-led Manmohan Singh government thanks to its controversial nuclear deal with America.

In such circumstances, an investor is often confused as to how to ahead in the markets. There are investors who have lost money in the recent decline and there are some who missed the bus earlier, and are eager to jump into the market.

A word of caution is advisable at this moment.

Investors should take into account these points before hand:

• Try to invest not more than 30 per cent of the corpus. Remaining 70 per cent should be in the form of cash. That provides a cushion to the investor. One can always add up to the portfolio if things look clear.
  
• Diversification of portfolio is important. All investments should not be in one asset class. For instance, in the present scenario moving some of the investments from equities and shifting into bullion is advisable.
  
• Follow a discipline, and study the volatility of the asset and keep a strict stop loss. Also follow a trailing stop loss when the investment is in profits.

Remember, capital saved is capital earned, always.

Jay Prakash Gupta is Head- E broking, Karvy Comtrade Ltd. The views expressed are personal.