The Key Steps to Keep in Mind While Preparing for 2021
While investors are optimistic about markets in 2021 with a vaccine being expected to launch this year, predicting how the markets will move in 2021 is difficult.
Near the all-time-high level, Nifty 50 and Sensex are up by nearly 16 per cent over the last 12 months. The leading indices are up by nearly 90 per cent till date, since the lows of March 2020. The movement is good as long as it lasts. However, the situation may take a quick reversal at any point of time, with valuations riding high and the economy not yet out-of-woods. On the contrary, the trend may continue further as currently market movement is highly unpredictable.
Also, dips in the equity market is inherent to the nature of equity as an asset class. Although in the long-run, the drift has been seen to be upwards in equities and hence long term investors stand to gain by linking their investments to their long term goals.
One big factor that the markets will be closely watching is the success on the vaccine front and subsiding of the coronavirus risk. “While investors are optimistic about markets in 2021 with a vaccine being expected to launch this year, predicting how the markets will move in 2021 is difficult,” says Harsh Jain, Co-founder and COO, Groww.
Equity mutual fund investors who have already linked their investments to long term goals may continue with their SIPs.
According to Harsh Jain, here are some important steps that investors can keep in mind, if the investment scenario becomes worse in 2021:
1. Diversification will still hold relevance in 2021. If the volatility continues, then an investment portfolio that is diversified across asset classes and different sectors within each asset class can help reduce risks.
2. Avoiding emotion-based decisions can help make better investment decisions regardless of the way the market performs.
3. If investors are looking at buying stocks, then they should research the company’s fundamentals and not just stock price movements. This approach can help them buy stocks of companies that can withstand an economic downturn.
4. Usually, long-term investors don’t get ruffled with market volatility since markets tend to average out over time. Hence, even if the investment scenario deteriorates, keeping a long-term view can be beneficial.
5. Systematic Investment Plans or SIPs are designed to help investors benefit when markets are volatile and falling. Hence, if markets deteriorate in 2021, starting a SIP can be a good option to benefit from rupee cost averaging.