There have been multiple discussions here about the probability of Bubble formation and shares being overpriced. I myself have recently found it very difficult to find good stocks that are undervalued. As I have cashed out after my earlier stoicks have run up quite a bit. I have some cash on hand that is idling. I am very cautious as of now for investing in stocks.
I wanted to know what stratergy is being used by other members of this forum in such a period.
I have fouind the following options and partly following them as of now.
- Monthly RD. 10% of monthly income.
- Monthly SIP in gold. 10% of monthly income.
- Holding in cash in savings account and bank does auto FD. 28 % of portfolio
- Liquid funds ( yet to invest ) 0%
- investing in super long term bets ( > 5 years time ) 70%
As of now have 28% of portfolio in cash waiting for a correction. If some stocks run up will cash out and hold in cash upto 40%.
Any other options available? Is buying huge amount of gold say 20% of portfolio a good option? Would love to hear other members statergies.
I am also finding it difficult to find suitable flexible avenues for holding cash (which varies from 10% to 30% in my case), for direct equity portfolio.
I have been parking such cash (profit booked from overvalued stocks) into FD, Liquid funds from last 4-5 years, as required. But FD is not flexible as adding and removing cash is not easy.
Liquid Fund is safe, but do not generate much returns.
Is it good idea to park cash in Banking & PSU Funds with modified duration of up to 2 years, so that interest rate risk is low to moderate and returns could be above 4%, mostly. Only risk is now since interest rates will rise there could be low returns.
Any other ideas to park cash (which is part of direct equity portfolio)?
Can look for Arbritage funds…They are lesser prone to fall as compare to equity funds…only drawback is to hold for 1 month to avoid exit load.
Please be clear of the objective. Parking means temporary, yes we could park for a year too, depending upon the corpus, need and our future outlook of the market. If we want to park for a few months to a year, we should not look at returns but focus on capital protection and liquidity. So modified duration and average maturity should be in months, not even 1 year. Liquid or money market funds will do the job, but with money market funds, there is the possibility of defaults.
Banking and PSU funds can invest 20% in other bonds, so there is a risk here. IL&FS had a big impact on these funds too. Things may have changed now, so you can check the PF of the funds.
For direct equity, liquid ETFs are an option, because on some days the market falls 2-3% owning to different reasons, and if we want to utilize such a fall, liquid ETFs are the best, as they can be sold instantly, but only 80% of the proceeds are available for that session.
I am aware of risks in Banking & PSU Debt funds, and hence generally park cash in Liquid / Overnight Funds and Bank FD(s) only.
One of the reasons why I started looking beyond is that, cash parked has been on higher side during 2021 and even in 2022, so I started looking for better returns. But as you have rightly pointed out even money market funds are prone to risks.
We should be clear in our objective, so protection of capital is more important here.
Liquid ETF(s) involve brokerage and taxes hence I will continue to prefer Liquid Funds and FD(s).
Some banks allow to withdraw funds partially on any day, so to some extent FD(s) are also useful, offcourse tax efficiency is less.
In all, Liquid and Overnight Funds seem better option for me.
Thanks for your thoughts.