During these stressful times, where it becomes difficult to keep a track of your investments as to when to invest and when to exit, you can give those decisions for your Asset Management Companies to make.
Utilize the trigger facility which your AMCs provide. The trigger enables you to exit the market as and when your expected returns have been achieved. Also, it enables you to fix a date, price or index level upto which you want to invest and or enter the market into.
The reason why most financial advisors advise this mechanism for conservative investors is because it allows you, as an investor, inculcate profit discipline so that you do not become greedy and try to make wrong decisions when the market is in boom. Most of the time it has been observed that, when the markets start going up, most investors start to re assess their targets and due to an unfortunate slump in the market, they might lose out on most or all of their investments. It can get messy if you might require debt like personal loan or a home loan etc to finance your future requirements as the repayment can take years to complete.
Another reason that can be cited as one of the reasons as to why you need to opt for a trigger is because it encourages goal oriented savings. If you intend to go for a foreign holiday or buy a car you can choose triggers of a short term nature.
Types of triggers:
Most AMCs provide various types of triggers. You as an investor need to sort as to what your goals are and decide the type of trigger accordingly.
Capital Appreciation/depreciation:
When your investment grows or shrinks by a certain percentage as decided by you.
Switching appreciated capital:
Transferring the gains on your investments to a debt fund while keeping the original investment intact.
Sensex/Nifty level:
When the market moves up/down upto a certain level.
Entry trigger:
When the market plunges to new levels, the money can be moved towards investing in equities.
Pre-fixed amount:
When the investments grow to a certain level, this trigger will look towards selling some units.
Net Asset Value:
When the NAV increase to a certain amount, you are in a position to redeem the funds.
Date:
Your choice for investing or exiting a fund on a particular date.
Choose your level:
Depending on your risk appetite, you can decide the level of risk you are willing to take. If the markets are on a bull run, you can expect returns from 12-15%. Triggers can be very helpful for only short term goals, and not for long term goals like retirement plans or your children’s higher education needs.
Apart from these benefits, you need to closely understand as to how your fund works. Exit loads are definitely going to be levied. But it is not necessary that all fund houses may do so. Closely analyze the the fees that can be levied when your investments move from equity to debt or vice versa.