Another example is when the investments are made on an annual basis instead of monthly basis. If you managed the feat of investing at the lowest level every year since 1991, your annual returns would have been 15.88%  CAGR. On the other hand if you invested at the highest level every year, your returns would have been 11.78% CAGR. This difference of 4.1% per year is huge. Now if you have invested on a fixed date every year let’s say the 1st January every year then your returns would have been a surprisingly 15.77%. The difference between a fixed date and the lowest date is just 0.11 p.a%. 

Let’s see the same figures as on March 9, 2009, when the index was at the lowest level in 2009.

Think for a moment. Does the paltry differences of 0.11% to 0.56% p.a really matter to you? The answer would be a resounding no for, most equity investors.

Key Learning

1. Do not worry too much whether you are investing at the highest index level or the lowest index level. Over a period of 15, 20 or more years it does not matter.
 
2. If you cannot muster courage to invest on a one time basis, do not fret. Invest in a systematic manner every month or every quarter or in any frequency that suits you. In fact the returns in the monthly case on a fixed date are almost similar to the ones given by one time investments done at the lowest level every year.

3. There have been scams, crashes and several other problems that the Indian markets have witnessed in the last 18 years. Despite all of these local and global problems, one would have got a 12.08% p.a as on March 9, 2009 over 18 years if investments were done on a fixed date annually.

4. Markets can be down for years but at the end of the day if you had invested at the highest level in one year, you should be happy if you get to invest at a lower level in the next few years. It’s not important to see green on your investments every day, week, month and even a year. Sometimes red can be really good for your investments.

Finally, history repeats itself and in an emerging market such as India with such amazing potential, I would be shocked if we see any return less than 12-15% p.a in the next 15 years.

- Amar Pandit

The author is a practising Certified Financial Planner and runs “My Financial Advisor“ www.myfinad.com. He can be reached at amar.pandit@moneycontrol.com