The present fall in the stock market from 21000 to below 17000 mark has changed mind of many investors. It has not only confused many investors but also has resulted in panic in the market. Investors have either stopped investing in equity or have made withdrawals from equity investment. Mutual Fund schemes are also under pressure of redemption. This volatility in the market will once again force people to play safe and park their hard earned money in Insurance, F.D.’s and Post, which are unlikely to beat inflation post tax.
Our Economy & GDP growth is likely to be under pressure due to both internal & external factors for some more time. Rising inflation & interest rates on the one hand and political uncertainty on the other are the biggest challenges internally. Crisis in American & European markets externally also likely to impact hardly on our economy. The growth forecast for 2011/12 is also cut recently to 8.2% from 9%.
One must try to understand equity as an asset class before investing. You cannot expect overnight profit from equity. You must invest as per your asset allocation. Your time horizon for investing in equity should also be 5 years & more. You must also review your investment periodically and rebalance your portfolio. Never try to time the market & stay invested for long term is the mantra for investing in stock market. If you understand the basics than this volatility in stock market will never affect you.
Equity has always out performed other asset class in the longer run. One should expect 15% plus return from equity, which market has already delivered since inception for long term investors. Looking at India’s GDP growth at around 8% and above, this is very much possible. The whole world is investing in India, but people of India prefer to stay away from India’s growth story. This is really very surprising and shocking. The reason is lack of awareness and quality of advice available in the market. I always try first to educate my clients and also strongly recommend them to invest part in equity as per their asset allocation.
I always advice my clients to invest through mutual fund schemes compared to direct investing through stock markets preferably through SIP (Systematic Investment Plan). SIP is always better for investing in equity in the long run. SIP means you are investing fixed amount regularly monthly/quarterly on a fixed selected date in one of mutual fund scheme for one year or more. The advantage is you get rupee cost averaging, which lowers the average cost. Secondly you are not worried about daily volatility of the market and makes market timing irrelevant. It is affordable and you can easily continue for long term and get the advantage of power of compounding.
Let us take a worst scenario. Suppose I started SIP of Rs. 1,000 on 1st Jan. 2011 for next 60 months in a fund whose NAV is Rs. 10. Let us assume market falling by 5% every month up to 8000 level (Low of 2008) and then rise by conservative figure of 3% every month up to 25850 mark. My total investment will be Rs. 60,000 and at the end of 60th month I will be having 9525.56 units in my account (See Investment chart below). NAV at the end of 60th month comes to Rs. 12.31 and the total fund value will be Rs. 117260, which gives me annualized return of 24%.
Investment Chart:
Month
|
Date
|
SIP Amount
|
NAV
|
Units
|
Sensex
|
1
|
1/1/2011
|
1000
|
10.00
|
100.00
|
21,000
|
2
|
1/2/2011
|
1000
|
9.50
|
105.26
|
19,950
|
3
|
1/3/2011
|
1000
|
9.03
|
110.80
|
18,953
|
4
|
1/4/2011
|
1000
|
8.57
|
116.64
|
18,005
|
5
|
1/5/2011
|
1000
|
8.15
|
122.77
|
17,105
|
6
|
1/6/2011
|
1000
|
7.74
|
129.24
|
16,249
|
7
|
1/7/2011
|
1000
|
7.35
|
136.04
|
15,437
|
8
|
1/8/2011
|
1000
|
6.98
|
143.20
|
14,665
|
9
|
1/9/2011
|
1000
|
6.63
|
150.73
|
13,932
|
10
|
1/10/2011
|
1000
|
6.30
|
158.67
|
13,235
|
11
|
1/11/2011
|
1000
|
5.99
|
167.02
|
12,573
|
12
|
1/12/2011
|
1000
|
5.69
|
175.81
|
11,945
|
13
|
1/1/2012
|
1000
|
5.40
|
185.06
|
11,348
|
14
|
1/2/2012
|
1000
|
5.13
|
194.80
|
10,780
|
15
|
1/3/2012
|
1000
|
4.88
|
205.05
|
10,241
|
16
|
1/4/2012
|
1000
|
4.63
|
215.85
|
9,729
|
17
|
1/5/2012
|
1000
|
4.40
|
227.21
|
9,243
|
18
|
1/6/2012
|
1000
|
4.18
|
239.17
|
8,781
|
19
|
1/7/2012
|
1000
|
3.97
|
251.75
|
8,342
|
20
|
1/8/2012
|
1000
|
3.77
|
265.00
|
7,924
|
21
|
1/9/2012
|
1000
|
3.89
|
257.28
|
8,162
|
22
|
1/10/2012
|
1000
|
4.00
|
249.79
|
8,407
|
23
|
1/11/2012
|
1000
|
4.12
|
242.52
|
8,659
|
24
|
1/12/2012
|
1000
|
4.25
|
235.45
|
8,919
|
25
|
1/1/2013
|
1000
|
4.37
|
228.59
|
9,187
|
26
|
1/2/2013
|
1000
|
4.51
|
221.94
|
9,462
|
27
|
1/3/2013
|
1000
|
4.64
|
215.47
|
9,746
|
28
|
1/4/2013
|
1000
|
4.78
|
209.20
|
10,038
|
29
|
1/5/2013
|
1000
|
4.92
|
203.10
|
10,340
|
30
|
1/6/2013
|
1000
|
5.07
|
197.19
|
10,650
|
31
|
1/7/2013
|
1000
|
5.22
|
191.44
|
10,969
|
32
|
1/8/2013
|
1000
|
5.38
|
185.87
|
11,298
|
33
|
1/9/2013
|
1000
|
5.54
|
180.45
|
11,637
|
34
|
1/10/2013
|
1000
|
5.71
|
175.20
|
11,986
|
35
|
1/11/2013
|
1000
|
5.88
|
170.10
|
12,346
|
36
|
1/12/2013
|
1000
|
6.06
|
165.14
|
12,716
|
37
|
1/1/2014
|
1000
|
6.24
|
160.33
|
13,098
|
38
|
1/2/2014
|
1000
|
6.42
|
155.66
|
13,491
|
39
|
1/3/2014
|
1000
|
6.62
|
151.13
|
13,896
|
40
|
1/4/2014
|
1000
|
6.82
|
146.73
|
14,312
|
41
|
1/5/2014
|
1000
|
7.02
|
142.45
|
14,742
|
42
|
1/6/2014
|
1000
|
7.23
|
138.30
|
15,184
|
43
|
1/7/2014
|
1000
|
7.45
|
134.28
|
15,640
|
44
|
1/8/2014
|
1000
|
7.67
|
130.36
|
16,109
|
45
|
1/9/2014
|
1000
|
7.90
|
126.57
|
16,592
|
46
|
1/10/2014
|
1000
|
8.14
|
122.88
|
17,090
|
47
|
1/11/2014
|
1000
|
8.38
|
119.30
|
17,602
|
48
|
1/12/2014
|
1000
|
8.63
|
115.83
|
18,131
|
49
|
1/1/2015
|
1000
|
8.89
|
112.45
|
18,674
|
50
|
1/2/2015
|
1000
|
9.16
|
109.18
|
19,235
|
51
|
1/3/2015
|
1000
|
9.43
|
106.00
|
19,812
|
52
|
1/4/2015
|
1000
|
9.72
|
102.91
|
20,406
|
53
|
1/5/2015
|
1000
|
10.01
|
99.91
|
21,018
|
54
|
1/6/2015
|
1000
|
10.31
|
97.00
|
21,649
|
55
|
1/7/2015
|
1000
|
10.62
|
94.18
|
22,298
|
56
|
1/8/2015
|
1000
|
10.94
|
91.43
|
22,967
|
57
|
1/9/2015
|
1000
|
11.26
|
88.77
|
23,656
|
58
|
1/10/2015
|
1000
|
11.60
|
86.19
|
24,366
|
59
|
1/11/2015
|
1000
|
11.95
|
83.68
|
25,097
|
60
|
1/12/2015
|
1000
|
12.31
|
81.24
|
25,850
|
Total
|
60000
|
12.31
|
9525.56
| ||
Value at end
|
117260
| ||||
Yearly return
|
24.24%
|
IT IS NOT TIMING THE MARKET, BUT TIME SPENT IN THE MARKET IS MORE IMPORTANT. SO DON’T WAIT, START SIP AT EARLIEST AND CREATE WEALTH FOR YOUR FUTURE GOALS.
