Equity

Going for the option of equity investment, if you want to be a buyer in a volatile market, then entering at a low level is the best thing to do. Falling market is a terrific opportunity to do exactly that. If short-term return is what you are looking for, then IT stocks or tech stocks lying low, would be a good choice. Even while you are making a choice of IT companies, pick the Top IT companies. These companies have good trading volumes and the price appreciation (or vice versa) will be more compared to the medium companies. But remember, short-term gain means high risk, which of course could fetch you very good returns or the other way round. And to be such a kind of investor in a volatile market, you really have to be on your toes. So unless you are prepared to keep track of the market every minute to grab the right opportunity, do not venture this way.

If you are an investor who wants medium-term returns, then you should target the medium level IT stocks. But be sure to pick the ones having a good performance track record. Again wait for an opportunity for the market to fall. IT, media, pharma and telecom scrips could be the ideal choice. Typically, such an investment generates good returns over a period of one year or so. The kind of risk profile here is also medium. This type of investment is ideal for individual investors, who want to part-take the profits of the capital market, but either do not find the time to track the markets regularly or lack the acumen to invest or are simply risk averse.

The last category of long-term investors. Volatile or not volatile, the market scenario does not affect this set of investors much. But again, you have to pick the stocks when the markets are down. In the current scenario, cement sector is a promising one, which is slowly improving with government emphasis increasing on infrastructure and construction. Electronic and Telecommunication sector also has good potential for growth since the Indian telecommunication and network companies are pumping large funds to meet the market demand. A good mix of different sectoral stocks can give a safe and good return.

Mutual Funds

Equities are about directly playing in the stock market. For a more safer version investment in mutual funds can be considered. There are three main benefits of putting your money in a fund rather than playing the markets by yourself. One, diversification of your investment portfolio,  two - fund managers handle investments professionally and three - it's easier to buy mutual fund units than to buy stocks from the market.

In mutual funds, investors have a tendency for sectoral funds simply because a sector might have been giving exceptionally good returns. While there is nothing in sectoral funds, the risk is high and one may gain or lose substantially, as the case may be. Here is when balanced funds come into picture. In the present scenario, a Balanced Fund can give you a good return with lower risk. If you want higher returns, then you have to take higher risk by investing in high growth sectoral funds. In balanced funds, the Funds are distributed equally between Equity and Debt in more or less a 50-50 ratio, unlike in Tech Funds which are 100% equity oriented. 

Currently, Tech Funds are focussing on the emerging sector - biotechnology and genetics. With lot of  success and lot of research going on  in this area, it surely looks good. Cloning technology with successful biotechnology research are few of those good stories. This sector has a real chance to grow in the coming future. While one should not miss the opportunity of investing in Tech funds, keep your risk profile in mind before taking a decision. Income Mutual Fund can also be a safer bet as the funds are distributed in a ratio of 55-45 Equity:Debt respectively. Here the risk is a bit more than that of Balance Mutual Fund but you can expect better returns.

Bonds

Coming to another investment alternative - Bonds - having the reputation of being boring investments. Of course, this is far from the truth. Bonds offer more stability than other types of investments. The reason is that most bonds pay interest periodically (usually every six months).

Another strategy to diversify your risk is to purchase securities of various maturities. When you buy bonds with a range of maturities, a technique called laddering, you are reducing your portfolio's sensitivity to interest rate risk. Building a laddered portfolio involves buying an assortment of bonds with maturities distributed over time. For example, you might invest equal amounts in securities maturing in two, four, six, eight and 10 years. In two years, when the first bonds mature, you would reinvest the money in a 10-year maturity, maintaining the ladder. Your return would be higher than if you bought only short-term issues. Your risk would be less than if you bought only long-term issues. You would be better protected against interest rate changes than with those if you bought bonds with single maturity term.

Others

There are other investment options which do not form a large part of your portfolio. Insurance, for example, is seen more as a tax planning tool. Similarly, Post office savings are very secure and tax saving instruments. Investments could also be made in real estate, which has the benefit of capital appreciation.

Another popular investment channel is Fixed deposits. They are the middle path investments with adequate returns and sufficient liquidity. Fixed deposits can be of banks, NBFCs and Companies. Bank yield is generally low with a maximum interest of 10 to 10.5% per annum. As compared to public sector banks, interest on other FDs is higher, but the risk is high too. A person should look into the following before going in for fixed deposits that is the interest rate, credit rating, fund allocation or diversification, period of deposits and periodic review of company. 

Choose the right mix

For the first time investors, or for that matter any investor, the systematic investment plan is a powerful technique, which allows you to take advantage of the price fluctuations (volatility) in the stock market by investing the same amount month in and month out. You buy fewer shares as prices rise and more shares as prices drop (that's essentially the buy low part). A more favorable average cost per share is generally the result. 

FINALLY, it all depends on your age, income, and investment objectives. Not every investor in the same age or income group may have the same appetite. But investors need to remember the golden rule of investing that "No matter what your investment objective - it makes good sense to diversify your portfolio".

Sujit Patnaik