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

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

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 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

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   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
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