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GROW my MONEY

Article | Sip - Aug 11, 2016 | 18:23 PM

SIP or gulp? Maybe a mix of both is the right way

Birla Sunlife - Grow My Money - SIP or gulp? Maybe a mix of both is the right way

Trying to time the market is a mug's game. Not that it stops people from trying their hand at it, and I too plead guilty to that. Over a year back, I finally overcame my skepticism towards mutual funds, having realized that some equity investments at this stage of life is one of the ways to build a decent corpus by the time I reach retirement age.

The first task was to identify the right schemes that matched my risk appetite. Not being able to make up mind on that, I decided to allocate a sizeable chunk of my savings to equity index funds. A couple of my colleagues who track personal finance told me that even if the returns from index funds may not be as spectacular as those from diversified equity schemes in the short run, there was a probability of the gap not being too wide over the longer term. Any which way, the returns could be above what I could hope to earn from traditional instruments.

The tricky part was how to go about putting the money. Should I invest a lump sum or in a systematic manner every month? Friends in the mutual fund industry told me that a Systematic Investment Plan (SIP) helps to work better because it automatically enforces discipline.

But since I track the market on a daily basis by virtue of my work which requires to me to monitor the Moneycontrol website, I thought I would be better off timing the market.

So I decided to invest a fixed sum every month, but on the day of my choice. It worked for a few months, thanks to the volatility in global markets caused by the rumblings in the Chinese economy.

My strategy appeared to be working well for a while. Experts had told me that when you are investing for the long term, it is better if the market trends down for a while. That way you get to buy a lot more at a lower price. Typically, markets tend to be range bound for a long time and the sharp up or down moves last for a shorter period, as my experience tracking the stock market has shown.

So there were months when I would invest more than what I had budgeted for the month, and there were months when I would not invest anything at all.

When the market started to slide from late January this year till the last week of February, I began to wonder if I was doing the right thing by investing at every dip. There was a week when I invested twice, and yet the market kept falling.

And then I had an unexpected stroke of fortune. I got a letter from my bank saying that my last couple of investments was rejected because I had not updated my KYC with the bank.

I told my wife that it was a divine signal that I should wait for some more time before I put money into the index funds. Instead of updating my KYC at the earliest, I decided to take it easy. That is because the outlook on the market was gloomy and experts were predicting further purges.

I had waited for some time before I had the KYC updated. By the second week of March, the markets had begun to climb. Having seen a downside of 22000 on the Sensex and 6800 on the Nifty, I thought it would be a good idea to wait till the market slipped back to those levels. With the Sensex currently hovering at 28000, I have been waiting ever since.

I think I will get back to systematic investing next month onwards.

Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.

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TRivia

  • Benefit of Index Funds

    Index funds usually have much lower operating expenses over actively managed funds.

  • What is Net Assets?

    This figure represents the fund's total asset base, net of fees and expenses.