As market continues to correct, should you relook at exposure to debt investments in portfolio? Experts say this
Benchmark indices Nifty50 and S&P Sensex ended the week two percent lower this week. The continuous decline in the stock market has given yet another reason to investors to relook at their debt allocation.
Investing in fixed income instruments provides stability to the portfolio and helps them sail through volatility. Wealth advisors suggest that this is the time to exercise caution and investors should stick to long-term allocation.
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“We believe the valuations of Indian equities are not cheap and hence investors should exercise caution. We don’t think this is a time to be overweight equities, hence investors should maintain an allocation which is closer to their long-term equity allocation. This could mean that investors could relook at their exposure to debt investments. Debt investments offer attractive yields and with expectation of rate cuts in coming few months, investor returns in debt investments over the next 2-3 years could be higher than recent past,” says Alekh Yadav, Head of Investment Products, Sanctum Wealth.
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Vishal Goenka, Co-Founder of IndiaBonds.com, opines that fixed income instruments play a key role in providing stability and predictability to portfolio, characteristics that are highly valued during such periods of volatility.
“Fixed income instruments are crucial components of a diversified investment portfolio. Bonds, a primary category of fixed income instruments, offer regular income through interest payments and are less volatile than equities,” he says.
Debt allocation in portfolio
The decline in benchmark indices is also seen as a good time to raise allocation to equity and cut down on debt portion at the same time.
Sridharan Sundaram, a Sebi-registered investment advisor and Founder of Wealth Ladder Direct, says, “Asset allocation depends on the goals and time they have. The short-term volatility gives investors an opportunity to rebalance their portfolio. When the market is down, debt allocation in the portfolio will naturally increase. For example, when you have 70 percent of your portfolio in equity and 30 percent in debt. Because of market fall, this ratio may become 68-32. Thereafter, you can do some rebalancing and invest more in the equity in a staggered manner. This will help you sail through the volatility.”
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However, Ravi Saraogi, Co-founder of Samasthiti Advisors, believes that if initial allocation is correct, you would not need to opt for rebalancing.
“If rebalancing needs to be done because of market fall, it means the initial allocation was wrong. On the other hand, when their financial goal is far, investors should, instead buy more equity in case of market correction. You should not be selling equity when the market falls,” says Saraogi.
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Published: 10 May 2024, 05:16 PM IST