10 commandments

In the current economic environment, you need to make some modifications in your investment and saving strategy. Rakesh Rai lists out the new canons of prudent investing to maximise gains.

Rakesh Rai        Print Edition: November 13, 2008

1. Thou shalt not use one bank account
Bank deposits are not 100% safe. Deposits of only up to Rs 1 lakh are insured by the government. If your bank fails, this is the maximum amount you will be entitled to. In the past, when there has been a rush of investors to withdraw deposits, some banks have been forced to stagger payment or limit withdrawals. So diversify your investments across banks and don’t park all your cash in one place.


2. Thou shalt not live on credit
Even in normal circumstances, cash is king. In times of a meltdown, as is the case now, this is doubly true. As defaults rise, stock brokers ask the clients for upfront payments before placing a buy order for securities. In such situations, only cash will allow you to tap the opportunities that a volatile stock market throws up.


3. Thou shalt not rely on debt
While equity markets are going through one of the roughest phases in recent years, fixed deposits and other debt options are offering very attractive returns. But don’t be tempted to go on a debt binge just because the interest being offered is very high. Though debt gives some stability to your portfolio, keep in mind that every investment carries an element of risk, including the so-called ‘safe’ investments. Some non-banking finance companies, in which debt funds and fixed maturity plans had invested, are defaulting in repayment commitments.


4. Thou shalt not be passive
You need to update your portfolio regularly and a bust offers an opportunity to do this. Keep an eye on market movements to weed out dead investments or take advantage of new avenues. For instance, did you know that some banks are allowing free upgrades to higher interest rate deposits without having to pay a penalty?


5. Thou shalt think globally
Global factors affect you; foreign names matter. When Lehman Brothers went bust, Unitech’s shares were hammered. So from now on, you need to look at how foreign companies, hedge funds, PE funds or FIIs are performing, since they invest in the companies that you invest in.


6. Thou shalt have a fixed time frame
If you don’t have a specific time frame for your investments or decide to ignore the one you had initially set, you could end up losing. Those who invested in real estate found this out to their disadvantage; they went into a panic mode and tried to offload their property even when prices were abysmal and there were few buyers.


7. Thou shalt ignore listing day gains
No longer can you rely on IPOs for assured profits. There was a time when investors could book spectacular profits of 100-150% and get out of an IPO the day it was listed. This is not true anymore.


8. Thou shalt not ignore equities
Don’t give up investing in the stock market just because the Sensex has fallen to below 10,000. Even if the uncertainty has forced you to scale down your investments, don’t stop putting in the money altogether. Regular investments help you bring down average costs.




9. Thou shalt not ignore bargains
A slowdown is a great time for the consumer. When everyone starts cutting down on investments and sales targets are consistently missed, it opens up the market for good deals. Houses, cars, gadgets, consumer durables… you’re likely to get great deals on all these if you keep your eyes and ears open.


10. Thou shalt not be afraid to quit
While recent job cuts in the high-profile aviation and financial services sectors might have scared you, not every industry is faced with the same uncertainty. All you need to do before you decide to change jobs is homework. Find out which sectors are suited to your skillsets and experience. For example, the professional requirements of aviation and hospitality sectors easily overlap.

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