MUMBAI: Investment advisors regularly pontificate the maxim of staying invested over a long term horizon to clock gains in equities, but in reality, the idea for the investors is difficult to implement. After all, with the free fall in the markets due to the global meltdown, apprehensions are running high of losing money and the appetite to stay investment is practically zero.
Small investors, who had taken to investing in equities through systematic investment plans (SIP) in a big way over the years, are pressing the panic button now, as the Sensex has breached the psychological support of 10,000. This downward spiral has got many to contemplate discontinuing their SIPs, with an intention of transferring the funds to less volatile asset classes. However, financial advisors caution against taking such a step at this point in time, as it would defeat the very purpose of starting an SIP. “When you start an SIP, your objective is not to time the market. You are looking to average out the cost of investing over a long horizon. Exiting the same in a bear market could, in fact, prove to be counter- productive,” reasons Swapnil Pawar, director, PARK Financial Advisors. Investing through the SIP route is deemed apt for retail investors when the markets are in a staring-down-the-barrel mode as this is when SIP’s USP – rupee-cost averaging – comes to the fore. The amount that you direct towards the SIP remains constant every month, which means that you buy less units when they are expensive and more when they are attractively priced. In addition, the fact that your entire investment will not be left to the mercy of the indices’ roller coaster ride at one go can also be quite comforting. Therefore, starting an SIP when the bulls are in charge and turning the tap off during a bearish phase would mean disregarding the fundamental principle of systematic investing. All efforts would come to a naught if you stop your SIP. Timing the market is almost impossible and hence an SIP, with its disciplined approach, qualifies as the perfect antidote to the prevailing uncertainty. At the moment, one needs to continue to repose faith in the ‘buy low, sell high’ philosophy and snare high quality stocks and MFs that are available at bargain prices. “One should go ahead and invest now, and choose SIPs and systematic transfer plans (STPs) as your vehicles for navigating choppy markets,” says Kartik Jhaveri, director of financial planning firm Transcend India. One could opt for an STP that entails parking a lump-sum in a liquid fund and transferring a fixed amount into an equity fund at regular intervals. This method can be ideal for those investors who are sitting on a stockpile of cash (that earns zero returns), but are reluctant to put their money into equities straightaway. Investing through an STP would ensure that they earn decent returns and at the same time avail of the opportunity to participate in equities. While staying invested, investors should re-jig the portfolio, if the performance of the fund is not on par with other contemporary funds. “Even here, you need to think of stopping the SIP in that fund only if its performance has deviated by more than 5-7% from the category average,” explains Mr Jhaveri. Clichéd as it may sound, systematic, long-term investment is the only method of riding the storm. For instance, if you had invested in the markets in November 2003, when the SENSEX was hovering around the 5,000-level, you would still be sitting pretty at the current level, despite the mega plunge since January this year. Many experts are of the opinion that India growth story has several chapters in store and it’s too early to start thinking about the epilogue. Thus, there seems to be every reason to continue with or even start an SIP in a diversified equity fund with a 5-7 year horizon. N.Sukumar Research Analyst www.kences1.blogspot.com --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
