Skip to main content

What you should do in a range-bound market

It is time to be defensive. The trick is to pick up every available opportunity to add returns bit by bit
BDV-270534-BDV
A RANGE-BOUND market is always on the move, but going nowhere! The ‘buy and hold’ will just eat away returns and may not even deliver return equal to say an fixed deposit (FD). Therefore, it is frustrating for a long-term investor since it eats into real returns. It is also frustrating for an arbitrageur since volumes generally drift lower and the bid offer of price makes it difficult to make money. Then, there are day traders, who still have work to do since their horizon is short.


However, sideways movements generally are preceded and succeeded by large bouts of volatility, which invariably take a toll on some large leveraged players. This leads to some active players withdrawing from the market leading to further liquidity squeeze. However, all is not lost!


Let me attempt to outline the investment strategies in a range-bound market for a normal average investor, a large savvy investor, day traders and introduce a new breed called ‘swing traders’.


The first dimension is a psychological one and here are some ground rules in this market.


Firstly, in a range bound market, buying any stock, going on a holiday and coming back to see your stock double or triple is not going to happen.


Secondly, a good money management will help accumulate more returns systematically than anything else.


Thirdly, for investors — who do not have current investment and have no compulsion to jump in without homework — the markets are not running away anywhere. Lastly investors, who are already invested, doing nothing and just hopping will not stand to gain either.


For the normal average investors, who are infrequent, it is best to watch stocks, which are fundamentally good in Sensex or Nifty. Then watch the movement and buy near the 52-week low, wait for exit at say 10% profit or even lower if it starts turning. One needs to book the losses if they start extending to say 5% below the 52-week low. One has to be patient and buy only when there are signs of stability at the lows but must never take eye off the scrip. A ‘buy and hold’ strategy is not recommended. If one is short of time for doing homework, indirect investment through mutual funds or SIP will be better.


To reiterate, good money management is critical in these times. For large savvy investors, usage of options can come very handy. To give you an example, let’s say an investor is holding a large concentrated holding. A good way to generate yields is to sell out of money calls. You can pick up close to 1.5% return for a month and if that price is a hit, you get out at profit plus the premium and can re-enter when the stock drifts down again.


Due to low liquidity and momentum, however, it becomes hard for jobbers (who buy and sell for a very small movement) to make large monies. It is better that they continue to stick with the large liquidity stocks. The velocity of trades does come down. It is important to guard against compulsively putting trades on account of habit.


It is critical to review the portfolio in which one is already invested. The way to repair a portfolio is either through use of derivatives (if one understands the risks of the same) or simply a sector rotation. Then move into large cap defensives and play the swing game. The trick is to pick up every available opportunity to add returns bit by bit.


The key is awareness that there are times to go on the offensive and then be defensive at other times. In range-bound markets, it’s time to be defensive, look at the risk levels you are running at an overall portfolio level across the full savings and make every penny work.


Small returns will add up to a tidy sum.

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now