Suresh Sadagopan, Founder, Ladder7 Financial Advisories, talks with Vivek Law about how to do financial planning

Suresh Sadagopan, Founder, Ladder7 Financial Advisories

  • February 1, 2016  
  • |  
  • UPDATED   17:25 IST
Suresh Sadagopan, Founder, Ladder7 Financial Advisories

Should investors be scared of this month's stock market volatility?

Suresh Sadagopan: It's very heartening to see that retail investors are not panicking and they are not taking the money out of equity market like it has happened in the past. We suggest our investors that when we do our financial plan we are looking at what goals are coming up in mid-term and long-term, and based on risk appetite and based on what they need to do to achieve this goals, is how we put together a portfolio. So there may be a certain amount of equity or certain amount in debts, so there is a certain asset allocation we suggest.

And even with an equity there may be a certain amount of large-cap, mid-cap funds, balanced funds or dept-funds all those things we will have in the portfolio. Unless there is a dramatic fall in the market which I would not call the current situation a dramatic fall, I don't see reason for a tactical reallocation.

If people are uncomfortable some of them look at a tactical re allocation, example: mid-caps are a kind of a pit so they can re allocate to large cap because that has slightly more potential to perform well forward. But that is not what we are suggesting to investors.

We are suggesting to investors who have done asset portfolio allocation properly, stay put. Continue with the investment, the market will stabilize over a period of time. No one can say it is 3 or 6 months or 1 year but we are not trying to predict the market. Keep the sips on; keep the investments on and over a period of time, that's what we are suggesting.

Do you think this is the right time to re-balancing? And could you share some thoughts on what re-balancing should and would entail.

Suresh Sadagopan: When we put an asset allocation in place, example- for a particular person asset allocation is 60% equity and 40% in debts, so at a point like this when the markets have gone down by almost 20%, equity allocation portfolio's will go down, so if we want to correct the allocation by 60-40% which we wanted to have in the first place we do what is called the re-balancing, we bring an amount from debt or any other asset classes into equity so that we can keep it at 60-40 levels, that is essentially re-balancing.

Also within that asset class, if someone wants to invest in large cap funds or mid-cap funds or some other funds, within that if you want to slightly rigid the portfolio that is called the tactical allocation. So tactical allocation can be between asset classes, like between equity and debts or it can be intra-asset also, from large cap to mid cap, mid cap to thematic. So that kind of thing can also happen.

Largely what we are suggesting is, do not shuffle the portfolio too much at this point. Because we really don't know what is going to happen and at times when we do these things, we later find out that those portfolios that we have not done anything, has done much better that which we have re-allocated.