If you are investing in the 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 is right thought to take out all your investment 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 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).
SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP 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 for an equity scheme.
SIP is 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 every month will add more units.
This will increase the chances of your getting more profit in future because you are getting this at very low price.
The concept is simple. Suppose you go to a mall and like a shirt that is for Rs 1,000, but you didn't buy it thinking the price is too high. But after some days, when you see the same shirt is now available with 30% discount you buy it thinking you won't get it for Rs 700 again. And in fact you buy more shirts because this kind of sale does not come every day.
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 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 bank loan or by selling gold/ornaments. Try and manage the amount from your saving. 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 then you make even more. By investing in such long schemes, investors get 12-15% annual return.
Suppose if our economy is growing at the rate of 7-8%, then the expected return from 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 Diversified Equity Mutual Fund of large cap stocks.
While selecting these funds, go for the scheme whose performance and reputation is constantly good. For example, you can invest in HDFC Top 200, ICICI Prudential's Focused Equity Fund, Reliance Vision Fund, DSP Blackrock Top 100 Fund, HDFC Equity Fund etc.
These are established funds and their performance is also stable. These funds perform better than their benchmark. Even their fund houses have a good reputation. You should start with these kinds of funds.
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 one should be infrastructure fund or any thematic fund.
In flexicap like Reliance Equity Opportunities Fund or HDFC Equity Fund, the fund manager has an option to shift investment from large cap to small or mid cap or take all his investment and keep it as cash, according to the market situation.
Same way thematic funds are those funds which invest in a particular sector like infrastructure or contra fund, Gold Fund, International Equity Fund etc. For example, now you can invest in ICICI Prudential Discovery Fund or SBI Emerging Business Fund.
By investing in five different funds, investors can gain from all the sectors.
Investor should be clear why he is investing money. Is it for child's education, marriage or for his retirement?
Continue investment with your set objectives and when the time is nearer of your goal, then take out all your investment from Equity Fund and switch to Debt Fund.
Even after your exit it is possible that the market continues to go up. But don't regret that if I would have waited for more time then I could have got better yield. Never be greedy for more profits because for you the financial target is more important.
Children education or marriage is more important rather than whatever your return is 15% or 18%. Your strategy must be to invest when you have money and take it out when you need it.
Most of the time people have lump sum money, but they waste time in thinking whether to invest today or wait for some time. They think that 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.
Source - the economic times
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