The Indian Equity markets saw one of it's worst nightmares over the past few weeks. In the first week of October alone, the Sensex slipped more than 2,500 points. Overall, the Sensex has shed around 5,000 points since it's all time high of around 39,000 towards the end of August. For the previous few months, Mutual Funds were showing early signs of the storm, owing to ailing mid caps and almost half of the Sensex and Nifty composition were in Red. However, some sectors like IT, and few banking and conglomerates stocks were holding the flag high. But with the recent fall in these stocks, the indices experienced massive jolts.

Markets are volatile because of various macro and micro factors, there is a lot happening around, global oil prices are increasing, US trade war sanctions, depleting Indian Rupee, the recent ICICI loan controversy, IL&FS' potential loan default, etc.

If you look at the excerpts from the experts, you'll come across diverse opinions, some are of the view that the markets may correct further due to the above factors and poor economic indicators, others opine an advancement, they are seeing at the positive growth estimates for the economy.

So, looking at the uncertain market scenario, falling NAV's, varying notions, what should be your plan of action?

Ideally in the current situation, you should Do Nothing.

Volatility is inherent in the markets, Equity, by nature doesn't grow in a straight line, there will be peaks and there will be bottoms, prompted by various factors, like the ones cited above are behind the current bottom. You cannot control it, so if it is not in your hands, let equity only exhibit the show.

Secondly, equities although are volatile, but if you look at the long term performance graph of the Sensex or the Nifty, the growth of the underlying companies and the economy takes over the peaks and the valleys, concurrently registering superior overall returns.

This is because the temporary factors don't determine the growth of Equities, these factors can influence the prices for the time being, but over the long term, the indexes are actually a slave of the underlying companies potential. If the companies grow, the indexes will grow. The Sensex Value on 30^th Sep 1998, was 3,102.29, and exactly after two decades, the Sensex closed at 36,227.14 on 28^th Sep 2018, translating into a CAGR growth of more than 13%. And that was about the Sensex, the return generated by most Equity Mutual Funds in India, is much more.

The best you can do in such a scenario is, Ignore, you don't even have to look at your Portfolio's value, the turbulence will subside and eventually the markets will stabilize, leaving your investments growing over the long term. Consider you have invested in a PPF, the lock-in of the PPF investment is 15 years. Do you keep checking the value of your PPF whenever there is a hike or cut in the bank rates. No you don't do that, rather you wait patiently for 15 years before you get the corpus credited into your account. The same logic applies to your Mutual Fund investments too. Be patient, give them time to demonstrate their potential, and let them fulfill your goals, the reason why you invested in them.

To conclude, amidst the current shaky situation, do what you have always been doing.

For your short term goals: Stick to liquid funds and short term debt funds

For your long term goals:

> Continue your Equity investments.

> Don't stop your SIPs. One of the core factors behind the superior returns generation in the SIP mode of investing is through Rupee Cost Averaging, which means at high NAV you get less units and lower NAVs will fetch you more units of the scheme. So, it's because of these volatile times, when the NAVs are low, you get more units in the SIP mode, which can give a boost to the overall returns over the long term.

So, let the cramps in your stomach rest, don't pay heed to investment recommendations from finance gurus on TV channels or from people around you. Trust your financial advisor, stick to your financial plan and keep moving towards your goals.

Equity and Long Term go hand in hand. Whenever you hear or read about investing in Equity, the concept of long term follows. That we should invest in Equity for Long Term, because Equity is risky in the short term.

But what exactly is this long term? How long is long term for Equity investing?

For tax calculation, any equity investment which is held for more than a year becomes a long term investment. But practically, investing in equity with a one year investment horizon is totally absurd. One year is a very short holding period for Equity investments.

Over the short term, equities are volatile, there are times when stocks have even doubled overnight, but there are also times when stocks have fallen by half over a night. So, the principle of long term stands to negate the volatility associated with equity over short periods.

The following is the BSE sensitivity table, it shows the returns from the Sensex for different investment periods from March 1979 until March 2018.

This table explains what we narrated above, as we see over short periods, both the maximum as well as the minimum returns are on the extreme, but as we move towards longer periods, the returns are stabilizing and the gap between the maximum and the minimum is alleviating. In shorter investing periods, the probability of making losses is quite high, but as the horizon increases the probability of loss significantly decreases and eventually becomes 0. So, an Equity investor in order to get desired returns and maintain enough distance from the the risk arising out of the volatility, must have a holding period where the probability of loss is low or Nil.

So, coming back to the main question, how long is long term?

The longer the better. There is no ceiling to the term long term, the more time you give to your investment, the less prone is your investment to risk and compounding works to generate superior wealth for you. Quite often we come across anecdotes where people totally forgot about their share certificates and made humongous wealth when they eventually sold their investments. In some cases, the investor died and his family got enough money to sustain a lifetime from his Equity investments which he made decades back. There is a popular equity investing strategy which is called 'being dead', that is invest and then forget about it.

Holding an investment perpetually can generate breathtaking returns and create spectacular wealth for you, but may not be practical. You have your needs, you have your goals to be fulfilled, which is why you invested in the first place. Equity markets grow in cycles, there is surge, then there is a steep correction before the markets eventually stabilize. To neutralize the risk in the investment, the holding period must cover all the phases of a cycle, which is generally between 5-10 years.

Generally Indian investors do invest for long periods of time, but mostly in traditional investment instruments. Investors invest in traditional tax saving instruments like PPF and then maintain their cool till the PPF's maturity, which is 15 years. But when it comes to Equity, they will keep checking the prices/NAV's, get tensed when their investments fall or get excited when they are making profits, and eventually end up selling their investments to avoid losses or to book gains. If the investor gives the same amount of time to his ELSS investment as he gives to his PPF, and simply forget about the investment as he does in case of his PPF, he will be amazed by the amount of wealth he could create by being invested in Equity.

Following is a snapshot of the value of Rs 1 Lac invested in PPF and in an ELSS scheme for 15 years.

An investor who invested in an ELSS scheme 15 years back would have made 4.5 times more wealth than an investor who invested in a PPF at the same time. And such superior returns are witnessed in all kinds of equity schemes over long periods, be it diversified schemes, large cap schemes, mid or small cap schemes, thematic schemes, etc. So, like you give time to your other investments like PPF's, or gold or property, if you maintain the same amount of patience in case of your Equity investments also, some of your greatest blessings will come with these investments.

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One of the fundamental elements that go into Financial Planning is Asset Allocation. Asset Allocation means bifurcating your investment portfolio between different asset classes, like Equity, Debt, Gold and Real Estate. The idea is to arrive at an allocation which helps the investor achieve his/her life goals, and also is in line with his/her Risk Profile, this ratio is called ideal asset allocation.

To arrive at this asset allocation, your financial advisor will take your existing assets as the base. So, your existing stock investments will go into the Equity component, your real estate investments will go into the real estate component and so on. And then you develop a strategy to liquidate some assets and invest in some other assets to arrive at and maintain the Ideal Asset Allocation.

Here, one common error that most investors commit is they misjudge their existing asset base. We tend to skip a lot of our existing, often valuable assets. Even when an investor says he/she is 100% invested in Equity, it may not be the case. It means that 100% of his/her liquid assets are invested in Equity. The house you live in, if you own it, or your ancestral property these are are your assets. India is the largest consumer of gold, it's there in our houses or in our bank lockers, it's a part of our portfolio. The innumerable Fixed Deposits, RD's, PPF's, EPF's that you hold are your Investments. When you take investment decisions take into account all your assets. We don't even mention these assets to our financial advisor who is helping us in defining our ideal asset allocation. So, what happens is the advisor does not get a clear picture of our portfolio, and we are eventually tampering with our ideal asset allocation and overall financial planning.

If you skip one asset, let's say if you ignore your FD's, then your Portfolio's inclination towards debt will be more than required. And at times the asset that you are skipping may be of substantial value. Like you may have missed some kgs of silver and few gold coins which were left to you by your grandmother, and the value of this hidden treasure is Rs 20 Lacs. The Gold component in your ideal Portfolio is just 5%, and if you omit telling about these riches to your advisor, then your Portfolio is significantly bent towards Precious Metals, which should have been ideally invested in Equity.

Hence it is critical to to count all your assets when you begin with Portfolio Allocation and Financial Planning.

However, in most cases, investors miss to count an asset because they do not realize that it is an asset.

So, before moving further, let's understand what exactly is an Asset?

An asset is a product or property that you own, either tangible or intangible, which fulfills the following characteristics:

> Value

> Liquidity

Anything which has value, and can be liquidated to fulfill your goals or discharge an obligation, is an Asset. While determining your asset allocation, it is important that you take into account all that you have which fulfills the above criteria.

Now, it's relatively easy to calculate the value of financial assets, like FD's, stocks, EPF, etc. You can also get an approximate value of your gold. Real Estate is the tricky one here. One, the valuation of real estate is complicated, and secondly, your stance property on the property may be complicated. Say for instance, there is an inherited property which is jointly owned by 10 cousins of yours apart from you, and you know you cannot get an affirmation for sale at least in this life. Or a family farmhouse, which will never be sold, or the house which you plan to gift to your children, and have no intention to sell. Such properties, that is, which cannot be liquidated to fulfill a goal, cannot be construed as an asset.

Similar is the case with inherited jewelery, in fact, any piece of jewelery in most cases. Jewelery cannot be construed as an asset, if you are emotionally connected to it, and have no intention of selling it.

So, assets which are valuable, but cannot be liquidated, must not be counted on for your future goals.

The bottomline, Asset Allocation is one of the preliminary procedures in your overall financial planning, each of your investments is dependent upon your Asset Allocation. Your financial plan is flawed if you omit revealing a full account of the assets that you own, to your financial advisor. The advisor will be able to deliver quality advise, if only he has a holistic view of your existing asset base.

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