2018 will be remembered for volatility; Crude Oil prices, Rupee-USD rate and Equity market. The sensex has seen it on many occasions earlier: During 1987 it fell 16% and gained 51% next year; it fell 16% in 1998 gained 64% next year; it rose a meagre 4% in 2002 and gained whopping 73% next year; it corrected 52% in 2008 and gained  81% next year; it fell 25% in 2011 and gained 26% in 2012; it rose a meagre 2% in 2016 but gained 28% in 2017. Whenever sensex provides negative or low return, it is followed by a higher return in the following year. Now it has delivered  6% in 2018. Any guess for 2019? Equity During 2018, Large caps have generated around 6%, Mid Caps (-) 15% and Small Caps (-25%). It could not reward risk takers. Going forward, the Mid caps and Small Caps may benefit most out of market revival. Debt   The yield on 10-year Govt security increased from 7.33% to 8.2%. This made many Debt funds with higher duration provide a negative/low return. The exceptions were low duration funds i.e. Liquid and Ultra short Term Funds. Besides interest rate risk, the Debt segment faced credit risks due to credit events like IL& FS crisis. But now the yield has moved downward to 7.36 %. The inflation has moderated to below 4%. Both are positive for Debt market. It is also expected that the interest rate may reduce during 2019. This will bring capital appreciation for long duration Debt funds. Mutual Funds SEBI undertook many path-breaking initiatives in Mutual Funds for the benefit of Investors. The clarity on expenses made Direct Schemes not only cheaper but also provided transparency. SEBI Registered Investment Advisers (RIAs) have to be Fiduciary and recommend direct schemes. They will charge a fee for their advice. Even the fee of around 1% is less than the commission being paid to Banks and Distributors for selling Regular schemes. This is a WIN WIN for Investors on transparency in terms of expenses and getting the best products. The RIAs do not get remunerated by the Mutual Fund AMC. The recategorisation of Mutual Funds schemes into 36 categories made the job of evaluation and comparison of schemes easier for investors and advisers. Our Approach We are always focussed on the achievement of Financial Goals and hence three factors critical for us are (a) Risk Appetite (b) Goal Horizon and (c)Asset allocation. Communication The market volatility made many investors anxious despite their goals being far away. In fact, the market fell 116 times out of 244 trading days during 2018. The “Greed and Fear” bias prompted some investors to exit the market and even stop the SIPs. In hindsight, it has been observed that those investors who exit due to fear regret afterwards. In this connection, Carl Richards says “Focus on your own behaviour and not the market’s behaviour”. Lumpsum Investments There are record inflows into Mutual Funds investments. The SIPs have less “market timing risk” but lump sum investments have it more. We have adopted a “Mother & Daughter” approach into lump sum investments. Park the Lump sum in liquid funds (Mother) and switch to Equity (Daughter) through STP (Systematic Transfer Plans). This strategy provides a similar benefit as SIPs. Physical and Financial assets In India, during 2018, the share of investments in physical assets (Real estate and Gold) has decreased from 62% to 60% and those of financial assets (Equity and Debt) have increased from 38% to 40%. This trend is likely to continue. The Millennials’ are shifting from possessions to experiences. Some clear trends are staying on rent, less of Gold ornaments and more of travel. Realistic expectations One must focus on achievement of Financial Goals and build a safer portfolio. With the inflation rate moderating, one should aim at a realistic real rate of return. The real rate of return is the gap between inflation and return on Debt(Repo rate). India has the highest real rate of return in the world today. If the inflation settles down at around 4%, one should aim at 7 % ROI on Debt (FDs, PPF etc). This will provide 3% real rate of return. For equity, the new normal should be 12% (GDP growth at8% plus inflation at 4%). Portfolio return to vary between 9-11% depending on asset allocation. Long-term investors with higher risk appetite can seek higher returns by taking exposures in longer duration Schemes (Debt), Mid-caps, Small caps and Sectoral schemes. But one should never compromise on the achievement of Financial Goals and stick to asset allocation. We wish you and your family a happy, healthy, prosperous and financially secure year ahead. We will continue to provide right, trusting and unbiased advice in the New Year 2019.