Best time to invest is now
Written on Monday, August 31, 2015
By Anil Chopra- Group CEO & Director, Bajaj Capital Ltd.
If you are investing in equity market at a time when the market is down, then I will say that is a wrong strategy. Similarly, I don't consider it the right thought to take out all your investments when there is a selloff in the market.
One should understand that mutual fund is a financial tool through which an individual can create wealth in the long term. If you follow financial discipline, I bet you can certainly make a handsome profit. Now the biggest question is what is the right time to invest in mutual funds? The answer is: invest when you have money rather than when the market is down. Next question is when to sell, or redeem units? For this, my answer is: whenever you need money. Never sell because the market is down or is expected to crash further.
All your investments must be linked to your future objectives. It is very difficult to decide when is the good time to invest or sell. It is unpredictable. If you have set a time period of 7-8 years or more than that, then start investing in mutual fund's Systematic Investment Plan (SIP).
Systematic Investment Plan (SIP)
SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. It allows one to buy units on a given date each month, so that one can implement a saving plan for himself/herself. An SIP is generally preferred to an equity scheme. SIP is a boon for investors because an individual is always in a gaining position in such schemes. It is not much affected by the market.
Suppose when the market is up, you are making money but when it is falling down, then also you are scoring. And in case you have not achieved your financial target, then Rs 5,000 that you are putting in every month will add more units. This will increase the chances of your getting more profit in the future because you are getting this at a very low price. The concept is simple. Suppose you go to a mall and like a shirt available for Rs 1,000 but you don't buy it thinking the price is too high. But after some days, when you see that the same shirt is now available with 30% discount, you buy it thinking you won't get it for Rs 700 again. And you buy more shirts because this kind of sale does not come every day.
Hike investment when market is down
In the same way, you can invest in SIPs also. You can increase the amount of investment when the market is down. Instead of putting in Rs 5,000 every month, invest Rs 10,000. But there should be conditions for that extra Rs 5,000 that it is not borrowed money or taken as a bank loan or by selling gold/ornaments. Try and manage the amount from your savings.
Don't go beyond your capacity
If possible, save more money to invest in SIPs. Don't go beyond your capacity. If your financial target is coming after 5-7 years, then only you can increase your investments. Intelligent people always act wisely. SIPs are always beneficial for investors because when the market is going up, then also you make money and when it is down, you make even more. By investing in such long-term schemes, investors get 12-15% annual return.
Diversified equity mutual fund
Suppose if our economy is growing at a rate of 7-8%, then the expected return from a diversified equity mutual fund will be around 15-16%. There are many mutual fund schemes but in which scheme one should invest is the main question. My suggestion is if you have just started investing, then invest in a diversified equity mutual fund of large cap stocks. While selecting these funds, go for the scheme whose performance and reputation is constantly good. These are established funds and their performance is also stable. These funds perform better than their benchmark. Even their fund houses have good reputation. You should start with these kinds of funds.
Divide your investment
If someone wants to invest Rs 25,000 per month, then he should divide this amount in five different SIPs and invest in five different funds. In these five funds, two should be of large cap shares, one should be of flexible cap, one from mid-cap and another should be infrastructure fund or any thematic fund. Same way thematic funds are those funds which invest in a particular sector like infrastructure or contra fund, gold fund, international equity fund etc. By investing in five different funds, investors can gain from all sectors. Investor should be clear why he is investing money. Is it for a child's education, marriage or for his retirement? Continue investment with your set objectives and when the time is nearer to your goal, take out all your investment from equity fund and switch to a debt fund. Even after your exit, it is possible that the market goes up.
Don't be greedy
Don't regret that if I would have waited for more time, then I could have got a better yield. Never be greedy for more profits because for you financial target is more important. Children's education or wedding is more important rather than whether your return is giving 15% or 18% return. Your strategy must be to invest when you have the money and take it out when you need it.
Most of the times people have lump sum money but they waste time in thinking whether to invest today or wait for some time. They think that the stock price may tumble further. But those who are waiting will always wait. Their signal will always be red and will never turn green. In such a dilemma, they always miss the bus.
#Mutual Fund investments are subject to market risks, please read the scheme related document carefully.
This article was originally published in 'The Tribune'.