Maximizing Returns: Capital Gains on Tax-Free Bonds and National Savings Certificates in India

 Big market drops can be unsettling for investors, evoking feelings of anxiety and concern, especially if they happen suddenly or in a short period of time. However, such drops are not uncommon in the past. Market volatility varies depending on the stage of the economic cycle and external events that increase risk and endanger growth. It's a common occurrence in markets, and investors should expect it. When markets fall, investment returns will fall, potentially leaving investors with significant losses. Look at the Investment Products online at My First Crore.

Is this to say that you should strive to sell when the market is "high" or sell if it begins to decline in order to avoid such an unpleasant situation? Certainly not. This is why:

Common Investing Mistakes

It is exceedingly difficult to accurately foresee the timing of a market decline in order to profit from such a prediction. To put it another way, it's simple to make a mistake with such a forecast, which can be costly. Individual investors who abruptly reposition out of equities in a bid to catch the tip of a market top routinely miss out on profits more than they avert losses, and produce extra transactions and tax expenditures along the way, according to the data.

While "buy cheap, sell high" may appear to be reasonable advice, the difficulty of getting it right means it is rarely a useful approach to make judgments in practice. Individual investors who "sell high" and "go to cash" in anticipation of a market downturn often lose patience as stocks continue to rise. Instead of averting losses, this causes them to lose out on gains. 

This expensive error mirrors another, in which panicked investors sell their assets during a market selloff, possibly locking in losses when equities bounce while they remain on the sidelines. Individual investors as a group tend to underperform market benchmarks because of the prevalence of these value-destroying activities.

Consider Your Goals

The typically superior buy-and-hold strategy does have one drawback: seeing a paper loss in your portfolio does not feel good. Some investors would prefer to assume less risk, even if it means foregoing some long-term gains, in order to shorten the amount of time they must wait to recover from losses, resulting in smoother sailing. 

Another thing to think about is how you're performing in terms of your financial objectives. A Financial Advisor may assist you by discussing your objectives and priorities and reassessing your portfolio depending on your current situation. For example, if you've made solid progress towards a goal, it could make sense to take on less risk, regardless of the market forecast. 

This is due to two factors. To begin with, it makes natural sense to take fewer risks when you have more to lose than gain. Second, you may choose the lower uncertainty that comes with a more conservative mix of stocks, bonds, and cash for added peace of mind that your progress will not be threatened.

If, like many of us, you still have work to do and a long way to go to reach your objectives, riding out the market's jitters may be the best counsel. According to our study, markets are most predictable over a seven- to ten-year time horizon (due to how well current yields and valuations predict returns over those horizons). Over that time horizon, our estimates continue to imply that equities will beat bonds and cash.

Bottom line: 

Working with a Financial Advisor can assist you in avoiding short-term thinking and remembering that investing is a long-term endeavour. As an investor, keeping an eye on the horizon is the best plan. Do some Equity Research in Indian Economy only at My First Crore. Visit now!