Is it a good time to switch from equity to debt?

POSTED BY rajat ON April 1, 2011 6:19 pm COMMENTS (10)

After the recent stock market rally of around 10%, can we switch our funds to debt as equity is bound to fall in coming weeks? Will it be a good time to exercise switch options in our ULIPs? What you guys think?

10 replies on this article “Is it a good time to switch from equity to debt?”

  1. Ramesh says:

    There is no evidence to suggest that a high PE ratio will “certainly” / “bound to” cause a correction.

    Every explanation is based on 20-20 hindsight bias. And none of them is forward-looking.

    Please explain a “crash”? How do you define a crash? Is a 10% correction = a crash.

    Markets will always behave against the Popular Belief. In the recent past, everybody was very pessimistic, maybe thats why there is a rally. As soon as the popular belief turns bullish, this rally may end. Cant really say. 😉

  2. moneysights.com says:

    Hi Rajat,

    You mentioned “as equity is bound to fall in coming weeks…”. Wish that one would be able to put a certainty to it. But nobody can predict. i’m sure you would have noticed that most “so-called” analysts were just providing “reactive” comments to the market movements. Now, it has being justified that developed markets are not cheap anymore & hence FIIs are coming back to India.

    This “circus” will always continue. If your current asset allocation has changed from your target asset allocation to the tune of 10-15%, it would be advisable to take some profits off the table…but if there is no change/ deviation from the targer asset allocation, you would just fall prey to the movement again.

    The same would apply to switching in ULIPs as well.


    Santosh Navlani | moneysights.com

    1. rajat says:

      Why I say market is bound to come down is because of the high PE ratio that we have as of now. Some time back we all were discussing on this site about why stock market crash is on the way due to high PE, I wonder what has changed in 1 month that its going up.

      1. moneysights.com says:

        @Rajat,

        Your argument in the context of the post about markets falling is valid. However, you need to also look at what followed in that blog post in comments section. There were various comments which mentioned that if one is a long-term investor, s/he is better off looking the dip as a buying opportunity. And is one is “trader” or “person with a very short-term horizon owing to capital requirement for goal fulfillment”, s/he should liquidate his/her positions.

        What is very important to know is “what are you?” – trader or investor. As a retail investor, one will be 99% wrong on timing the market. So, know yourself & take a call.

        Hope this helps.

        Santosh Navlani | moneysights.com

  3. Chaitanya says:

    It might fall for couple of weeks, and will pull back by EOD…. So if you think in terms of long term, then you might hold on as well…

    1. Chaitanya says:

      by end of year**

  4. Ramesh says:

    what about the 20% rally still to come in the next 3 quarters?

    1. Ram says:

      @Ramesh

      On what basis do you think that there will be a 20% rally from here?

      1. Ramesh says:

        No one can predict the markets, on a consistent and correct manner. People can do so inconsistently correct or consistently incorrect.

        You should switch from the equity to debt only if you think there is a severe downtrend in the next few months. Unfortuantely, there is no way to predict even that.

        My prediction of 20% is complete guesswork based upon the level of 25k at the end of year. 🙂

    2. moneysights.com says:

      well asked, Ramesh. it is so easy to fall in this trap of daily market movements…!

      Santosh Navlani | moneysights.com

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