Coronavirus impact: Here are answer to all your investment related FAQs

During con-calls with investors and subsequent Q&A sessions, Motilal Oswal's  Akhil Chaturvedi has been pleasantly surprised with the fact that investors have matured -- especially retail investors -- as they not even once discussed the extent of the current correction nor did they talk about the value of portfolios eroding drastically.

Most of the questions put forth by investors did not reflect any kind of panic or urge to disinvest, instead it seem like they were trying to sense an opportunity to invest at deep discounts. Motilal Oswal shares its views on the most frequently asked questions (FAQs) by investors in such troubled times.

A: It is difficult for anyone to predict the absolute bottom, especially given the current conditions. Until  the on-going crisis is completely brought under control by countries which are most impacted, markets would continue to be volatile and would remain in correction mode.

Having said that, we do feel that the correction has been "done too much too soon" due to rapid selling by FII’s and low volumes. From here the pace of correction may not be too much, but you can never rule out a 5-10 percent correction in the coming weeks.

So investors could:

1. Not get impacted by looking at notional losses in portfolios and simply sit tight at this point in time.

2. If comfortable, try and add more money in equities to take advantage of the ongoing volatility.

A: A famous anecdote in equity investing is to ‘buy low’ and ‘sell high’ – meaning buy on dips and reduce the cost of acquisition of equities. This will ensure guaranteed wealth creation in future. It’s the nature of markets to be volatile and we need to treat volatility as a friend than a foe.

Cash is king -- Some portions of your wealth should always be kept in cash  so that whenever there are significant corrections in markets due to whatever reason, it can be put to good use. So surely, it’s a buyer’s market and if you have cash and courage than this is the time to start allocating to equities.

A: At current levels, there is really no harm in investing at one go, but it is advisable to stagger investments given the current situation -- may be on a weekly basis more than monthly basis. SIP’s work the best when you get opportunities to see your instalments getting bought at lower prices resulting in accumulation of more number of units which would have a significant payoff in the long term.

If you were buying only on rising prices, then averaging would only be higher and during a correction your portfolio will have higher relative under-performance. To avoid this, we need to ensure existing SIP’s continue, and new SIP’s are initiated today than tomorrow. So we suggest, the "time to buy is now"

A: We emphasise that companies across all market-cap buckets make money, timing large caps or midcaps could be a futile exercise and therefore it is always advisable to have a portfolio with a mix of large – mid and small-cap companies which are of top most quality with high levels of sustainable growth.

Thus, it would make sense to invest in multi-cap or large and midcap category funds. This will ensure you have best of both the world and be absolved with the mystery and challenge of trying to time the bottoms and tops of large caps and mid cap cycles. Also, data suggests that the volatility measured by standard deviations are much lower as compared to pure large or mid cap oriented funds, meaning you will make superior risk adjusted returns in long run.

A: This is another challenge faced by investors wanting to invest in equities finding difficult to decide when to buy and when to sell, thereafter who much to buy and how much to sell. These answers lie in the valuations of markets, as markets go up the valuations get premium and as it goes down the valuation go in discount. Obviously, it is always better to buy when valuations are cheap and low, which means markets have corrected and prices have come down and it’s the time to increase equity allocations.

Investors in such dilemma have the option to look at Dynamic or balance advantage category funds which use various valuation matrices to arrive at understanding how expensive or cheap the market is and then using such model determine appropriate allocations between equities and debt.

For example, in current markets - valuations are getting discounted and the valuation models are suggesting gradual increase the exposure to equities, similarly as markets will go up the allocation to equities will reduce. So the Buy Low and Sell High fundamental works best in this category of funds.

A: Given what we have recommended above, investors should look at ‘Motilal Oswal Large & Mid Cap Fund’ for pure equity exposure, this fund is invested 50:50 between large and midcap companies with investments in very high quality companies for long term growth.

And for those who want to go little conservative and take balanced approach, they should look at ‘Motilal Oswal Dynamic Fund’ where the fund manager uses in-house sophisticated valuation model called ‘MOVI’ (Motilal Oswal Value Index) derived using P/E, P/B and Dividend Yield parameters to decide allocations between Debt and Equity asset class dynamically. This fund will help you invest more in equities in falling markets and reduce equities in rising markets. At current levels, the fund has deployed 70-75 percent n equities and balance in debt.

The volatility of this fund is almost half of that of Nifty and hence in long run you will have a smooth journey without going through too much of ups and downs in portfolio and stable return. Those, who are also at wanting regular liquidity for the monthly expenses can consider this fund through the SWP (systematic Withdrawal Plan) option, which allows liquidity up to 12 percent annually with any penalty charges. These withdrawals can be taken monthly or quarterly or yearly as per the need.

So, in this short note we have tried to give you broad perspective on the markets and the ongoing CONVID 19 issue. We have tried to address some of the burning questions you may have with some of the solutions we think are opportune for you to consider while evaluating your existing portfolios as well as making fresh allocation.

Note: Akhil Chaturvedi is Associate Director & Head, Sales & Distribution at Motilal Oswal AMC.