‘Time’ the market right through SIP

There are multitudes of investors in the personal finance space who come across several queries pertaining to investment routes.

Common questions that boggle investors are: Should I invest in direct equities or should I invest in Mutual funds? Should I invest through an SIP in mutual funds or should I time the market?

Even the people who consider investing in direct equities or mutual funds may find it hard to answer the above two questions.

I have a simple counter to it which goes as follows:

Me: How long have you been in equity markets?

Investor: About 10 odd years. My father also has some very small exposure to equities.

Me: How has your performance been so far?

Investor: Kind of a mixed performance. I made money in some direct allotment like TCS (which I am still holding), I lost a bunch in Suzlon which I bought for Rs 104 a few years ago (still holding), Reliance (where I am not making any money for the past few years), …

Me: While all that is good, what is your percentage return on the investments made?

Investor: Sorry sir, I have not really calculated that.

Me: Do you believe that you can time the market or do you buy whenever you have money?

Investor: I think I can time the market but I also think I will go wrong a few times, now and then.

Me: Were you buying equities in 2001, 2002, 2003 or did you hide under the bed scared of the market?

Investor: Markets were in such a bad shape that I had kept my money in the bank. I actually started investing in 2005 when the indications were clear that the market had come out of trouble. In 2009 my father was not well so I had to sell some shares to pay for his medical treatment, and the market was so low that I made a loss. So, even my long-term investments (three years is long term no? My CA tells me that for equity shares long term is one year). Then I had again started investing in 2011. I bought some FMCG stocks which did very well, then I bought Pfizer which also did well and I sold off. I bought some Infra stocks – which have not done too badly, but not done too well either.

In my view, the investor is of the view that he can time the market, but of course he has not been able to. If you have been investing in 2001, 02, 03 – when everybody abandoned the market, it is an indication that you have been able to ‘time’ the market. I am using it in the context that you did not panic when others were panicking. The fact that in 2008 he had to sell his shares to pay for a medical emergency, sounds frivolous. For medical emergencies, you should have medical insurance and an emergency fund.

This person withdrew from his equity shares because he was too lazy to withdraw from his LIC policies, or PPF. He did buy some pharma and some FMCG stocks – but he also bought some infra stocks. Now intuitively, it looks like infra will do well – but picking the best infra stocks (at reasonable prices) is very difficult, and one sees professionals struggle doing that. If he had done a SIP in a multi cap fund from 2001 till today, increasing the amount slowly - annually, he would have had a much stronger portfolio.

It is fairly hard to time the market successfully.  Hence, I recommend that you should do SIP in an index fund and have a look at it in a span of 10 years.

BRICK BY BRICK

• Common questions that boggle investors’ minds are - should I invest in direct equities or should I invest in mutual funds?
   
• Often, people also find it difficult to understand if investing through SIP in mutual funds would be beneficial for them or timing the market
   
• Even the people who consider investing in direct equities or mutual funds may find it hard to decide if they should invest in mutual funds or direct equities

The writer blogs at www.subramoney.com