5 actions retail investor should take in falling market

Last few weeks Indian economy has seen mayhem in terms of equity market movement southwards. There has been substantial movement (up or down) in all major indicators i.e. equity indexes such as Sensex, Nifty, Currency Indexes such as USD-Rupee, Precious metals such as Gold and Silver, Bond yield etc. They are interlinked and will make each other move.

What the retail investor should do in such a situations? We have come up with 5 actions that one can take about his investments in such volatility.

1.        ULIP(Unit Linked Insurance Policies)- If your money is held in equity or equityoriented fund and you are near (up to 1 year) the maturity or withdrawal then you are due for action. Your priority is to protect the interest earned on investment so far. Most ULIP have different fund options such as Equity, debt and money market or combination of them You should switch them from Equity to Money Market (Liquid) fund. While switching from equity to liquid, one should do so near high of broader markets.

2.       Shares: Unless you are ultra-long (more than 5 years) term investor, you are due for action. Most shares fall in price during fall in broader market. So sell your holdings near high and wait patiently for markets to bottom out. You may buy same shares (provided they are fundamentally sound) near bottom again. (Most retail investors do exactly opposite-Buy near high and Sell near low) 

3.       EquityMutual Funds (MF)- Investors tend to withdraw from MF when the markets are falling. As a result the fund faces pressure to perform. If you are not willing to hold the investment for long term or you are planning to withdraw from fund in near future, it is better to withdraw from equity fund. Alternatively you can switch the funds to safer options like liquid fund.

4.     Silver & Gold: It is possible when equities not performing, gold & silver are doing well. Focus on these investment alternatives by way of ETFs, Physical purchase or through futures.

5.     Short Term Alternatives: You may switch to short term investment alternatives if you have expertise. You can earn in falling markets by way short selling in equity orcommodity in F&O. You can temporarily park amount available in liquid funds, and s switch to equity when you fill markets are reversing.