Personal Investing: 3 Investment Modes to Beat Market Volatility in 2023

In these uncertain times, especially against the backdrop of the pandemic, expected financial downturn, and job losses, the value of a good investment remains even more critical. It helps to tide over any eventuality or challenge that life may offer.

Typically, factors associated with a good investment, include risk and returns, long-term viability, earning consistency, persification, liquidity, and fair price, among others. 

The amount of risk in the portfolio should be limited. A phase of volatility and losses is typical in investment; however, the chances are narrow in the case of a good investment. A typical good investment option will hold its value in the long run, despite considering the phase of market volatility. As an investor, you remain assured of good returns at the time of exit.

Investor’s perspective: Risk appetite, investment horizon and finance goals

As an investor, start by looking at the investment horizon. The longer the investment horizon, the more time to grow investments through the power of compounding.

In addition, consider the risk appetite or tolerance and style of investing. For example, take into account the short-term and long-term needs of a family. For example, HDFC Life Sampoorn Nivesh is a unit-linked participating insurance plan for an investor’s financial protection needs where one can choose from 10 funds to optimise the investment returns. 

The quality of the portfolio is what matters and not just the historical returns or performance. While analysing past returns, try to focus on 10 years or more of returns. 

The quality of the portfolio relates to high profitability, which could be measured as return on equity (RoE), return on assets (RoA), or return on invested capital (RoIC).

The margin of safety, which is the difference between the expected return on an investment or asset and its cost, is required to be assessed so that the portfolio is adequately valued. 

Risk and the resilience of the portfolio are also to be assessed. Resilient portfolios are known to take measured risk accounting for uncertainty, tend to hold perse exposures and adapt to changing market conditions in the long run. This includes both known and unknown risks. In the case of HDFC Life Sampoorn Nivesh, the investment risks in the investment portfolio are borne by the policyholder.

Eye on Few Preferred Asset Classes

Fixed-income instrument options such as Debt Mutual Funds, Bonds, which provide stability against stock market volatility, as well as Unit-Linked Insurance Plans (ULIPs) for goal-based savings, have emerged as preferred asset classes.

Debt Mutual Funds

Take the case of Debt Mutual Funds, which are known to generate returns by lending an investor’s money to the government and private companies. 

They have emerged as one of the preferred asset classes in the past few years due to higher portfolio yields on account of recent interest-rate hikes by the Reserve Bank of India (RBI). 

Some of the best debt funds of 2022 have delivered almost 10-25% returns.

Debt mutual funds remain a less risky investment proposition as compared to equities or stocks.

Prices of debt instruments and interest rates have an inverse relationship. This means that they move in opposite directions. For example, a dip in interest rate is good for debt funds or bond funds. 

Long-term debt fund benefits in case the interest rates are moving downward. As interest rate dip, the bond prices shoot up and this gives a boost to the net asset values (NAVs) of the debt mutual fund schemes.

Bonds

Bonds are debt instruments where investors lend their money to bond issuers, which could be governments, banks, non-banking financial companies, or corporate entities, who then invest it further, which could be for providing operating cash flow, financing debt, or funding capital investments in education, infrastructure healthcare and other such projects.

The bond issuer promises returns at the end of the bond tenure, along with interest payments at regular intervals. 

The risks associated with bonds are comparatively low concerning other investment instruments.  

Bonds can be segregated depending on the tenure of maturity. For example, bonds with a maturity period of fewer than five years are called short-term bonds. Those with a tenure of 5-12 years are called intermediate-term bonds, while long-term bonds are those with a tenure exceeding 12 years.

ULIPs

Finally, ULIPs have emerged as another preferred investment option over the years. To make insurance policies a bit more lucrative in terms of rate of return, the concept of ULIP was introduced. In this, the amount of premium invested was perted partly towards life insurance, while a major portion was towards investment in the stock market directly or indirectly, which is through investment in another fund. For instance, HDFC Life Sampoorn Nivesh is one such unit-linked life insurance plan that gives the option to choose from three convenient benefit options to customise the payouts.

Summing Up

As an investor, it remains important to make investment decisions based on alignment with personal objectives and goals, which is always to build and manage an investment portfolio in a way to grow wealth over time. Take the case of HDFC Life Sampoorn Nivesh, which offers multiple benefits, including tax benefit as per Income-tax Act (ITA), 1961.

Reach out to professional experts for additional guidance on any of the investment instruments. Do not invest in any scheme without gaining a thorough understanding.