With the nifty breaking 8900 range, this query is regularly requested by our investors. Many humans think that there must be a correct "TIME to INVEST" and wait for a suitable time while the markets are low. Accordingly as the market rises, there are reservations among many investors to invest / pump in more money through their ongoing SIP's and as an alternative forestall them and look ahead to the markets to become accurate.
In my view, this view point consequences in lack of opportunities and adds useless complexity to an instrument that was meant essentially to reduce risk and simplify equity investment. Since it is unpredictable whether or not the markets might move similarly up or down from this degree and considering the fact that it is nearly not possible to expect the best time to enter, stopping the ongoing SIP is not recommended. Many investors wait on the sidelines with money in their banks earning a dismal return of 4% for an appropriate time to enter into the equity market!
Equity markets do not provide returns in a regular manner. They move up, flow down or wriggle sideways and since nobody can predict correctly the path of the future markets, SIP's can provide us an opportunity to hedge our bets by each methods. An SIP spreads out your investments over time at separate market levels, thereby making sure that you buy more whilst the markets are low and less when the markets are excessive ensuing in an average purchase rate.
So instead of fretting over the market movements, it is highly recommended to select the SIP path and keep yourself away from stress about the timing of entry and exit. However, when you have a lump sum amount to invest, rather than investing the whole amount at one move and at one market level, take the STP (Systematic Transfer Plan) path, which is the best way to make sure the staggered entry points for your finances.
As an investor inside the equity markets, it may be profitable to follow the following guidelines :
- Select funds for your portfolio according to your risk appetite and horizon of investment. Don’t select funds based on returns or ratings given by numerous agencies. Do your own research / studies or ask us for an expert advice!
- Have a well diversified basket of funds in your portfolio. Remember that even though mid and small cap funds give higher returns, they are more risky in adverse market conditions. Having different funds will help you to generate optimum returns in any market conditions.
- Check the holdings of the funds which you select. Having multiple funds with the equal holdings defeats the purpose of diversification.
- Monitor the overall performance of your funds. Each fund manager might also manipulate the fund as in keeping with his outlook. But if there's a change in the fund manager or the mandate, and if the fund constantly lags its benchmark, then it may be better to take the alternate fund or change the fund.
- Always make investments towards a predetermined purpose/goal and as you get closer towards your purpose /goal it is recommended to switch from equity to debt at least 1-2 years before the goal.
- Lastly and most significantly, if you discontinue your SIP's you will lose out on the benefits of Power of Compounding. Actually, SIP enables you to ride out market cycles with a disciplined method to making an investment and generates wealth over a longer period of time!
Cheers to our Valued investors!