Long-term investment view goes well in choppy stock markets

The stock markets have been volatile with a negative bias since the last few months due to the uncertainty in the global markets and slowdown in the domestic growth story with the tight monetary policy. There have been days when the intraday market swings were more than two percent. Usually, the stock markets are volatile by nature and many short-term investors take advantage of the movements as it gives them trading opportunities. However, small investors better off staying away from these intra-day movements and trading. Day trading is a completely different ball game and is not recommended for individual investors as it requires tracking the markets close. You need a very high risk appetite and good understanding of the market movements.

The stock markets have been volatile with a negative bias since the last few months due to the uncertainty in the global markets and slowdown in the domestic growth story with the tight monetary policy. There have been days when the intraday market swings were more than two percent.

Usually, the stock markets are volatile by nature and many shortterm investors take advantage of the movements as it gives them trading opportunities. However, small investors better off staying away from these intra-day movements and trading. Day trading is a completely different ball game and is not recommended for individual investors as it requires tracking the markets close. You need a very high risk appetite and good understanding of the market movements.

Here are some strategies for investors in choppy market conditions:

Investors with low risk appetite

Investors with a low risk appetite should go for safer instruments. They should give more weightage to capital protection while taking investment decisions. It is advisable for investors with a low risk appetite to reduce exposure to equity and equity- based instruments. Among equity- based instruments , these investors should pick blue-chip companies with a low beta, with a longterm perspective .

Volatile markets may appear attractive, but investors should maintain a tight stop-loss and profit booking trigger. Many small investors get stuck on the wrong side in the markets during choppy conditions as they hold on for too long unduly to their investments. They don’t book profits or stop losses in the markets.

Small investors should ideally invest in equity through equitybased mutual funds. A systematic investment plan ( SIP) is a good way to enter the markets as it ensures a good average entry price.

Investors with moderate risk appetite

Most small investors come in this category due to the corpus they have for investing. The markets have corrected by almost 20 percent from their peak levels over the last few months. They are expected to correct further but history shows the market movements always surprise investors. The bottom level is difficult to predict.

Therefore, investors with a medium to high risk appetite should hold their positions in fundamentally-strong stocks and keep investing with a long- term perspective at regular intervals to get a good average price for the entire holding. It is important to diversify by investing in stocks from different sectors.

Also, it is important to invest in various instruments and maintain a balance between debt and equity, large-cap stocks and mid-cap stocks, and short-term and long-term investments.

These are some basics investors should keep in mind: Set goals

It is very important to set targets and objectives for your investments and keep booking profits (or part profits) at regular intervals. It is not possible to time the markets and predict the peaks and bottoms . Therefore, it is important to keep booking profits at regular intervals .

Risk capital

Investors should invest only their risk capital in the markets. Investments in the stock markets come with the risk of losing the principal amount. Therefore, small investors should never take a loan to invest in equity or equitybased instruments.

Go for large caps

It is recommended that small investors should keep their exposure only to large-cap or large mad-cap stocks. The valuations and potential of small-cap and penny stocks look attractive but they come with a high degree of risk.