The idea of systematic investing is still far fetched for most investors, though it is the key to reaping good returns.
Sir John Templeton, the late financial markets guru, once said, “The best time to invest is when you have money. This is because history suggests it is not timing which matters, it is time.”
I have put the statement into practice. And does it work.
It may be pertinent to ask how many retail investors have investible cash. Very few do. Most earn monthly salaries and somehow manage to randomly allocate a portion to asset classes.
The idea of systematic investing is still far fetched for most investors, though it is the key to reaping good returns. The concept of rupee-cost averaging always works in favour of investors in the long run. Even if the market is on a downward trend, regular purchase of units helps reduce the average price per unit.
Hence, when the market looks up, the gain you make on your investments would be relatively higher. Thus, the investments keep averaging over the period. It is a kind of equities recurring account, which can over time deliver a handsome return to the investor.
Remember, nobody can time the market. If you invest regularly, you can average your investments to the ups and downs of the equity market.
For savvy retail investors, the shorter a systematic investment plan (SIP) interval, the better the returns.
Till recently, the shortest systematic investment possible in mutual funds was monthly. However, the frequency is set to improve with fund houses options of daily SIPs made possible.
One could ask, since the equity market is in a bad phase, does it make sense to start investing now?
Experts say the maximum downside risk from the current levels is some 10-15%, but considering the Indian growth story, there is much upside potential. That being the case, a systematic investor is thus looking at a very low risk-rewards ratio.
To quote Sir Templeton again, “Forty years of experience have taught me you can make money without ever knowing which way the market is going.” With systematic investments, you can say that again.
The writer is CEO, Bharti AXA Investment Managers.
Views are personal.
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