Only two weeks into the new year, and the market has already reached a record high, small and midcap stocks are thought to be expensive, making investors hesitant to invest more in equity. Given all of this, where should investors invest in 2024? Experts recommend investing ₹5 lakh primarily in large-cap mutual funds, with the remaining in debt securities.
The rationale for investing in large-cap funds is that they are not yet overpriced, whereas investing in debt funds should be done for the long term because interest rates have peaked, and it is recommended to lock money in fixed deposits and other debt securities such as bonds and debt mutual funds.
Large Capitalization Funds
To invest ₹5 lakh wisely, consider allocating 70% (₹3.5 lakh) to large-cap funds and the remaining to debt funds. Sridharan S, a Sebi-registered financial advisor and founder of Wealth Ladder Direct, recommends investing 70% in large-cap companies because they are not yet expensive. Value companies are already pricey, so investing in growth equities is recommended. The remaining funds might be allocated to dynamic bond funds with a period of 2-3 years, he explains.
Sridharan explains why he is optimistic about large-cap stocks: "As inflation eases, interest rates are anticipated to decline. This will be reflected in stronger corporate profitability and, consequently, in stock prices."
Short or long term?
Experts also argue that the investment decision is determined by the duration of the investment, i.e., whether it is made for the short or long term. And if your financial goals are still a long way off, it is best not to be carried away by the short-term volatility. "Buy right and sit tight!" is an adage that works for long-term investors. Conversely, if you want to capitalise on short-term volatility and have some money to invest, you must be cautious about where you invest today.
"I constantly urge my clients to invest their lump money to achieve their financial goals. So, if you have a lump sum, determine whether you need it for a short-term aim. If you fall short of your desired amount, you can use this lump payment to cover the difference. Make a short-term FD with this lump cash," suggests Preeti Zende, a Sebi-registered financial advisor and the proprietor of Apna Dhan Financial Services.
And if you don't need the money right away, you can put it towards long-term goals, she says.
"Although the market is now high, you can invest some of your money in equities in this allocation: choose a large cap or index fund, as well as flexi-cap. It is better to avoid mid and tiny caps. When it comes to debt, you can choose PPF/SSY or invest in NPS or Gilt funds," Zende says.
Renu Maheshwari, a Sebi-registered financial adviser, does not believe in short-term investments. "All money should always be invested in accordance with your personal and financial goals. The ₹5 lakh should not be any different. "Just because the calendar year has changed, the fundamentals of investing should not change," she ends.
