The double blow of the crisis in Europe and weakening US economy has sent jitters across the financial markets. Compounding matters is the slowdown in Japan and China. The domestic markets are no longer isolated from the world. They have morphed into 'global' owing to the heavy investments from foreign institutional investors (FIIs) and dependence on the developed world.
What sort of impact has the global crisis had on investors here?
Fund managers across the globe are moving out of volatile investments and drifting towards less risky assets. In a state of panic, FIIs and other investors pulled out their money from the stock markets making it choppy. As financial managers migrated from gold to cash, the volatility of the yellow metal went up.
In essence, the impact of a weak global economy is volatile markets and lower stock prices. High inflation and slowdown in economic activity are currently plaguing the domestic shores.
Where does an investor park his funds in the current conditions?
Stock markets
Analysts opine the markets have hit the bottom and good days are ahead. Do not attempt to time the markets. Invest with a long-term perspective of 5-7 years. This is the best strategy in unpredictable market conditions. Investors can rebalance their portfolios now. Weed out the laggards and add f u n d a m e n t a l ly - s o l i d stocks to your basket.
A long-term approach enables you to view the phase of a slowdown as an opportunity to pick up stocks at low valuations, rather than hitting the panic button.
Debt avenues
The reigning high interest rates have made debt instruments popular with small investors. There are lucrative returns from low-risk fixed deposits and increased yields from debt funds. The returns from debt funds are poised to improve further in the days ahead.
Fixed maturity plans (FMPs) that are for fixed time periods invest in fixed returns investments such as government bonds and money market instruments. Exposure to FMPs is not a bad idea for the risk-averse.
Instruments such as unit-linked insurance plans (ULIPs) package insurance needs with investment avenues. They help save for the long term financial goals while catering to insurance needs of the individual. Look at the past performance and future prospects of the ULIP before investing.
The risk-averse can keep away from the choppy markets while the aggressive investor may find hidden value picks in these conditions.
