Markets are more dynamic than you can imagine. They can play havoc in the short term and hence, the most important criteria is the time and not the timing.
By Abhinav Angirish
Is there any right time to invest in the markets? The answer is ‘No’. Markets are more dynamic than you can imagine. They can play havoc in the short term and hence, the most important criteria is the time (longer period of investment) and not the timing (when to invest). If you are investing for a long term, the benefits of duration will outweigh the loss of not catching the lows as the compounding factor is more powerful than the odds of catching a low.
Yet, if you don’t trust the current market valuation and don’t want to invest your lump-sum wealth in one go, you can choose the ‘SIP’ offered by all mutual fund houses. If you are investing for long term through Systematic Investment Plans (SIP), i.e. investing a small amount at regular intervals for a number of years, your investments will reap the benefit of rupee cost averaging, i.e. buying more units when the price is lower and buying lesser units when the price is higher by investing the same amount every time. This will always give you an upper hand in the market and will remove the worry caused by the volatility, i.e, the market swings caused by high liquidity in the market.
Is anytime a good time to invest? Fathom this: When one sells, there is someone buying on the other side. Naturally, someone sees an opportunity that you don’t. Yes, markets can really try one’s patience and that is the key to invest. Of course, a prudently-chosen diversified portfolio will never go wrong. But, if one falls prey to the sector cycles like the tech boom in 1999 or infrastructure boom in 2006 and invests all or most of the savings in specific sectors, that can lead to drastic portfolio deterioration. On the other hand, it can also end up with a huge pile of profits. It is best left to professional investors to take such dramatic calls.
Hence, it is ideal for an average investor to stay diversified and focus on his/her asset allocation. On many occasions, when you feel that markets have shot up, split your investments in smaller tranches ,but ensure that you invest and not pause after a while. Over a period of time, markets will keep rising with the growth in earnings of the corporate sector. There could be longer waiting periods, but eventually, the markets will reflect the earnings.
(The author is managing director, Abchlor Investment Advisors (P) Ltd)