The Hindu Business Line : Timing your SIPs right

I am a retired person and have invested 5 per cent of my savings in mutual funds: UTI Master Share, UTI Brand Value, UTI Growth & Value, Reliance Equity Opportunities and Standard Chartered Classic Equity, aggregating Rs 2 lakh. I feel that instead of investing in an SIP, where the date of investment each month is fixed, I can invest periodically when the NAV comes down due to corrections in the stock market. Please let me have your views on my portfolio and investment strategy.

C. N. Jayaram

Madurai

It is a good decision to allocate a fixed portion of your savings to equity funds. But the choice of funds for your portfolio could do with some fine-tuning.

Based on our experience with fund performance, we usually recommend that investors stay away from new fund offers and stick to established diversified equity funds with a good five-year track record.

Based on these criteria, we would suggest that funds such as the HDFC Top 200 Fund and Franklin India Bluechip Fund be part of your portfolio. You can hold on to UTI Mastershare on account of its low volatility, consistent performance and its annual dividend payouts that may appeal to a retired person.

UTI Brand Value has registered good performance in recent months; but as a theme fund, it would require an active strategy. If you don't plan to closely track the fund and time your exit, we suggest you book profits and switch to a diversified fund.

Investing through a Systematic Investment Plan does impose some rigidities on your investment strategy. Fund houses usually give effect to each instalment on a fixed date of their choice every month. The index may not necessarily be at its lowest level for the month when your monthly instalment is invested.

It would indeed be ideal if you could time each investment you make in an equity fund, to that month's low in the stock market.

But such an investment strategy would be difficult to put into practise. For one, without the benefit of hindsight, it would be extremely difficult to call whether the market has reached its lowest level for the month.

If you had invested in the market after the 400-point fall in the Sensex this month, you would still have had to face a further decline of 400-odd points!

Second, if you try to time your investment to perfection, you may end up putting off the investment until it is too late.

You may hesitate to put fresh money into an equity fund when the index has just climbed by 200 points. Yet, it is equally difficult to commit a fresh investment to the equity market when the indices are tumbling!

Continuing to invest and holding on to your existing investments through volatile periods for the market, is the best way to create wealth over the long term.

A systematic investment plan helps you do this; as it puts your investment routine on auto-pilot and helps you avoid decisions that involve timing the market.

If you do track the stock markets very closely and believe you would be able to time your investments well; we suggest you make these decisions on a one-off basis. Make the regular investments towards your long-term financial goals through systematic investment plans.

You can always make additional one-off investments in an equity fund, if you feel that a particular market correction offers an attractive investing opportunity.

Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859/860 Anna Salai, Chennai 600002.

Aarati Krishnan

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