Most of us are in a dilemma about where to park our hard earned funds so as to meet our two important needs, one to give us required return and second to secure our future need of funds.
Looking at the current market scenario and the way the sensex has reacted during the last two years, I am sure that most of us must have lost faith in the equity market. The reason for this is that most of common people like us who invest in equity market either do it blindly on others advice without doing their homework or go through a safer route of mutual funds.So the most important question that arises at this point of time is how to manage one’s portfolio so as to meet one’s requirement.
So one should adopt following strategy (considering your age is 25-30 years):
Invest 60%-70% of your funds in equity market through mutual funds or directly in case where the market is at lower levels just like it was in Feb ’08. This is so because situations like economic meltdown which happened recently happens once in four to five years and stay invested with a long term target of about 3-4 years. After that take out your principal amount and leave the balance amount for a longer duration say about 8-10 years. This is so because you have already taken out your principal amount and when your investment is blocked by market going down, you will not feel the pinch since your principal is already safe. Further the amount of principal taken out should be invested in safer instruments like FDs,PPF etc which give you a fixed return.
Invest 20%-25% of your funds in life insurance policies so as to meet any future contingencies since it would be better not to neglect any future contingencies.
Invest the remaining 10%-15% in safe securities which give you fixed returns like bank deposits, PPF etc.
The ratio of investment in mutual funds and PPF must be have kept changing depending on the point at which the sensex is because it is not safe to invest our funds in equity when the market is at high levels and then wait for a year or six months to get back our principal when the market goes down without giving us any clues.
So increase the ratio of investment in PPF and decrease in equity when the market is at higher levels and vice versa.
Also it is advisable to invest in equities of those companies which have issued IPOs at certain prices in the near future and the current market price of those companies is below their IPO price because normally it is seen by the trend that their prices always go up from their IPO price over a period of time and give a return of about 40% to 50% over a period of 3-5 years.
So by the time you reach the age of 50-60 years you will have a handsome funds to enjoy rest of your life.