Want to invest in equity? Here’s why you need to plan your exit before planning your entry

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Published: February 27, 2019 12:16:23 PM

To take advantage of equity returns, just start investing your long-term money so that you may stay invested for a longer period to get the benefit of the power of compounding.

equity markets, equity investment, equity markets, market risks, mutual funds, MF, equity MF, systematic investment plan, SIP, retail investors, plan to enter market, exit plan, plan your exit, financial planning, long-term investments, power of compounding, waiting for market correctionsIt is said that investors lose more money by waiting for the bottom to enter the market than the losses due to market corrections themselves.

Equities are traded in stock markets and hence get directly affected by fluctuation in the markets. Although market fluctuations pose risks in the short term, but they also provide opportunities for investors to generate higher return than fixed-income instruments in the long term.

Undoubtedly, it is an ideal situation to invest in equities when the market is at the bottom and sell them when the market is at the top, to maximise the gain. However, nobody can predict with perfection the exact bottom and top of market cycles. So, waiting for the bottom to invest would only result into missed opportunities.

It is also said that investors lose more money by waiting for the bottom to enter the market than the losses due to market corrections themselves.

The best way for retail investors to enter the markets is through systematic investment plans (SIPs) in equity mutual funds (MFs), where qualified and experienced team of fund managers manage investors’ money. The fund managers take calls on when to buy stocks and when to sell them, depending on market conditions and performance of the stocks. So, there is no point for retail investors to wait for market corrections to start investing.

Moreover, investing through the SIP mode would take care of market movements by investing the same amount of money in equal intervals, which averages the impact of fluctuations as the money gets invested in high as well as in low markets.

So, to take advantage of equity returns, just start investing your long-term money so that you may stay invested for a longer period to get the benefit of the power of compounding.

Although you need not plan your entry and wait for market corrections, but it is important for you to plan your exit and study market situations 1-2 years before the scheduled exit to maximise gains. You might be wondering why the exit plan is important even before starting to invest!

It is because the exit plan will make you identify the long-term financial goals and will provide you long-term vision to overlook short-term volatility. In fact, exit plan is nothing but a part of the long-term financial planning.

Once you come to know the point of exit in line with your financial goal, you may start studying the market 1-2 years before and shift your fund out of equity when the market is high. Otherwise, you may get frustrated for missing the opportunity to book higher gains if you want to exit at the nick of time and find that the market is down.

To enter equity markets with conviction, financial planning is very important, which not only make you ignorant of short-term market fluctuations, but make you aware of how much to invest and for how long and in which type of funds to realise your individual long-term financial goals.

So, don’t delay your entry by trying to time the market or planning your entry, but plan your exit to enter the equity market as a resolute investor to fulfill your dreams.

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