Event-based investing – Is it the right way to go?

Last week was Akshaya Tritiya -- an auspicious day for Hindus and Jains. Over time the significance of the day has got lost in the cacophony of gold marketing companies. Newspapers, magazines and television channels are full of advertisements mentioning the importance of buying gold on this day. 

Throughout the year, days like Akshaya Tritiya are hyped in the media to lure the unsuspecting investor. Another such day is Dhanteras (just before Diwali). Not that there is anything wrong in investing on these days. But investing has to be methodical, and not driven by festivals and marketing strategies. They should be the exception and not the rule.

Most investors invest erratically – such as on their children’s birthdays and during ‘JFM’ (January, February, March) to ensure some income tax deduction. The idea behind such haphazard investments maybe good. But then such investments start and end on that very day. There are no further investments till another auspicious day, or a birthday or the JFM period arrives.

There are several pitfalls of engaging in event-based investing are:

Firstly, what this results in is an ad hoc, unfocussed investing pattern which really does not get you anywhere. The amount of investment purely depends on availability of funds on that particular day. There is no fixed amount being invested. Such haphazard investment will not lead you to your goal.

Secondly, though there could be a goal mapped to a particular investment, generally such investments are not backed by any mathematical calculation. Investors don’t address questions  such as – how much do I need at the end of the term?; have I accounted for inflation while computing the goal?  It’s a simple exercise of stashing away funds.

Thirdly, in cases where the saving is forced (such as in tax-saving investments), there is obviously no goal. In most cases, there is focus on the product too. It’s a simple rush-job to meet the deadline. Most people are not even aware where they have dumped the money, let alone looking at returns.

Fourthly, there is quite obviously no analysis or research done on whether the product is suitable for you or not. Such investors neither do a risk analysis nor have look at their asset allocation. Their decisions are based on hearsay and tradition. This generally leads to a situation where they put all the eggs in one basket.

Fifthly, because of the demand pressure, the price (typically of gold) tends to move up. With a ‘single-day’ lump sum investment being made on these days, you tend to buy at the highest point with no chance of getting the benefit of ‘rupee cost averaging’. In the long run (of say 15-20 years), this generally does not give you the best possible returns.

 

People who engage in ‘event-based’ investing believe that they are ‘planning’. But in reality, they are only planning to fail. With little or no mind put to various critical issues, the end result can only be a disaster. So I would suggest that put away additional amounts on such events, but plan your investments across the year through proper financial planning. Achieve your goals in a planned and focussed manner, leading your family to financial wellness.

Financial Planning mantra #8

Never try and time the market. You may get it right a few times, but more often than not you will be wrong.

Be a regular and disciplined investor. Even the wisest cannot predict the market. Warren Buffet lost billions in the crash of 2008. Ratan Tata went on record saying that if he had known of the coming slump in global markets, he would not have gone ahead with the Corus and JLR deals, at least not at the prices that he paid. In 2008, when the Sensex slumped from 22000 to 8000 every equity fund slipped by at least 50%. When the markets rose by 50%, from 8000 to 12000 most funds managed only a 15-20% upside.

What I am trying to get to is that even the best of the best in the business find it impossible to predict such movements. As a retail investor you don’t stand much of a chance of being correct. Even if you manage to catch the downside or the upside, it is more a question of luck than any skill.

SEBI’s latest ruling on mutual funds - its impact and after-effects

SEBI’s recent announcement on mutual funds has two important bearings:
1. There would be no entry load on any mutual fund investment
2. Distributors would have to negotiate their commission with their investors

No arguments about the first point, it is of immense benefit to the investor. This will probably lead to a higher exit load which is good for investors since they would be incentivized to hold their investments long-term. A couple of years back when there was no entry load for SIPs, but was later withdrawn.

As far as the second point is concerned, I think it is a good move, but ahead of its time. The Indian investor is still not well informed in matters relating to investments and mutual funds. Besides, the penetration of mutual funds is rather low. Insofar as investor education is concerned, we have a long way to go before we can bring ourselves at par with the developed markets (whose systems and methods we are keen to emulate).

Though in the long-term the move will prove to be good for the financial planning industry and for the investor, it will have several short-term impacts that may be deterrent to the interests of the small investors, distributors as well as the mutual fund industry.
1. INVESTORS MAY END UP PAYING A HIGHER COMMISSION: On the commission issue, I foresee a lot of unnecessary bargaining happening between the distributor and the investor. In fact, distributors maybe charging a higher rate now -- say Rs 500 on Rs 5000 investment. Even if the investor bargains and brings it down by 50%, he would still be paying a much higher fee / load than was applicable earlier. Since a fair percentage of investors today are not even aware of the kind of commission the distributors get or that there is anything called an entry load, they might feel happy about the bargain. However, they could be paying a much higher percentage as commission.
2. COMMISSIONS MAY BE PAID IN CASH: Distributors may also charge commission in cash, leading to loss of both service tax (that the distributor would now be liable to pay) and as well as income tax to the government. Small amounts of commission – perhaps in the region of Rs 1000 or more may be passed on in cash to the distributor.
3. SIPs MAY SUFFER: SIPs or systematic investment plans may suffer since the investor may not be open to paying commission each month, or paying a lump sum at the beginning of the SIP term. So the distributor would probably stay away from recommending SIPs as lump sum investments are good and less hassle for him/her.
4. DISTRIBUTORS WILL FOCUS ON ULIPs: Distributors may start focusing more on ULIPs where there is low transparency regarding the commission going out to the agent. Since commissions are much higher in ULIPs, the obvious tendency for ‘sellers’ of both would be to maximize their revenue by proposing ULIPs and presenting them as mutual funds. Again, the small retail investor will lose out. As it is there is enough talk of ‘mis-selling’ of ULIPs.
5. EXPENSES TO INCREASE AFFECTING NAVs OF MUTUAL FUNDS: To get into more nitty-gritty of things, the charges are going to go up. One reason for this would be that mutual fund houses would probably work on higher trails and various marketing schemes to keep distributors happy (incidentally 90% of all business of mutual funds comes from distributors). Where would money for all this come from? From charges, which result in reduction of the NAV. Again who will suffer more? The small retail investor.

There is immense amount that SEBI and mutual fund houses can and need to do to increase investor awareness and grow the market. Ad hoc measures like this and an uneven playing field among various financial products would only lead to more confusion initially and consequent mis-selling by distributors. Unless tackled at a much broader level, the small and uninformed investor will continue to pay the price and will remain a small participant.

Financial Planning mantra #7

When is a good time to start investing? Simple answer - NOW!

Should I start now or wait till I get my bonus next month. Many people drag their feet when it comes to saving money. It is always NEXT week, NEXT month, NEXT year, NEXT increment, NEXT bonus. It is a never ending NEXT cycle. Time flies by and before you get down to it in a serious manner, maybe even 5 or 10 years have gone by. The cost of a 10-year delay (in starting) can be as huge as 50%. In other words, if you start at age 40 instead of age 30, the difference in the end corpus can be as much as 50% plus.

The longer you are able to grow your investments, the better returns you are bound to see. The ‘power of compounding’ kicks in only when you have given your investments a long time to grow. Hence, the earlier you start, the better it is for you.

Mark Twain has rightly put it - October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February. Simply put, there is no ‘safe’ month (which you should wait for) to start your investments.

Financial Planning mantra #6

Investment in ULIPs should be for a period of 10 years (minimum) or more, since it is a long term investment product and not an option for insurance cover.

Investors seeking insurance often end up investing in ULIPs, not realizing that ULIPs are market-linked and focus more on returns than on providing sufficient insurance cover.

ULIPs are investment products with very heavy costs (entry loads) in the initial 3 years, the highest being in Year 1. Broadly speaking, it can range from 10% to as high as 60% in Year 1. In short, if you are paying a premium of Rs 1 lakh annually, only Rs 40,000 is invested. Rs 60,000 is a sunk cost. So before investing in any ULIP, always check on the initial costs. The costs in the next two years are additional.

I have come across a number of people who buy ‘insurance’ in the form of ULIPs which are of 3-5 years of duration. There are three vital mismatches here:
- ULIPs are primarily investment products with little focus on the quantum of insurance
- In order to get good returns on short-term ULIPs (of 3-5 years maturity), one has to be very lucky, since the costs are prohibitive in the first 3 years, especially.
- If you pay the premium for the first 3 years only (when the costs are at their peak), then you tend to lose out. In the later years larger sums of your premium get invested (since costs are lower), so the chances of getting much better returns is more in the long run (10-20 years).

If the investor has a horizon of 3-5 years only, ULIPs are not ideal products to invest in. ULIPs are good products provided your time horizon is 10 years or more and you purchase it as another asset class of investment and not as insurance.

Financial Planning mantra #5

Invest in New Fund Offers (NFOs) of mutual funds ONLY if there is something really very unique about them or it is the first of its kind. Even then, evaluate before you invest.

Each time a NFO hits the market you are bombarded with great flyers, posters, ads and presentations to convince you that this is the right time to invest. As an advisor, I have kept away from most ‘me-too’ NFOs. But I must humbly admit, in my initial days, I too failed to realize the ‘disguise’ in a few NFOs. Thankfully, I could not muster more than a handful of clients (some of whom themselves came forward) to invest in them, probably because somewhere in my mind I was not fully convinced. Today, three-and-a-half years and over 100 NFOs later I am a much wiser man. At all NFO-distributor meets, I pull out all stops to ask all wise and foolish questions. Because till the time I am fully convinced, I should not be taking it to my clients.

The only ‘plus’ point in any NFO is that ‘they do not carry any deadwood’ (as a friend of mine puts it).

Two major why investors fall for NFOs are:

- Most people equate a mutual fund ‘unit’ with that of a ‘share’ and consequently believe that a fund with a Rs 10 NAV is cheaper than that with a NAV of Rs 50. In mutual funds, there is no difference. In fact, a fund with a higher NAV is better, in the sense, it is more ‘experienced’. Of course, this cannot be applied as a blanket rule while choosing funds.

- Aggressive ‘selling’ (because of higher commission rates) by the banks (through ‘financial advisors’ and ‘relationship managers’) and individual distributors

Of late, I have noticed fund houses coming out with NFOs to shore up their AUMs (assets under management). Incoming money into equity funds had almost dried up from mid-2008 through the first few months of this year. With huge drop in share prices, the AUMs of all funds came down drastically. With sentiment improving, the last two months has seen fund houses ‘putting old wine in new bottle’ so that they can collect a few hundred or thousand crore (which would not happen under normal conditions).

The fund houses claim that the one of the purposes of a NFO is to grow the low base of retail investors (from 2%). But this logic is beyond my realm of understanding. If they really wanted more investors, they should focus more on their existing funds and show higher returns rather than just trying to mop up money in the name of growing the market. Look at it logically:
- Any one putting in money into an NFO would in all probability be an existing investor in mutual funds.
- A new investor (with no past experience in mutual funds) would come in only if he is made to believe that a Rs 10 NFO is cheaper. So he is made to start off on a false premise. It is not going to be long before he feels ‘cheated’ and vanishes forever.

Today NFOs have become a money mopping up exercise. Almost all kinds of permutation and combinations of funds are already there in the market (the only thing that is still not there is a ‘Silver ETF’).

A fund manager recently lamented that the size of the entire MF industry is less than one month’s of domestic savings. It is bound to be till fund managers and AMCs realize that the way to grow the size of this industry is to record higher and better performances of existing funds (thereby attracting fresh and new retail investors) and not by bringing out NFOs.

Financial Planning mantra #2

Ensure a proper asset allocation before making any investment

Plan your resources in such a manner to give you maximum possible returns in achieving your goals. The three primary asset classes are equity, debt and cash. Some other asset classes include real estate, metals (like gold) and even art.

It is imperative that before making any investment you must ensure proper allocation. Asset allocation depends on factors like - age of the investor, time horizon available, holdings in current portfolio, etc.

In India, a lot of people buy financial products in an ad hoc manner, with the result that their portfolio is heavily skewed towards debt and low-return instruments - PPF, PF, money back and endowment policies, FDs, NSCs, debt options in ULIPs. All these have fixed or low-returns, thereby making them unsuitable options if you are investing with a horizon of 15 years or more. Of course, depending on your risk-profile, the amount of investment in equity (direct or indirect) would vary, but it has to form a part of your portfolio, provided you have time on your side.

Investors love to do their retirement planning (25-30 years from now) with debt as the sole option, not realizing that in the long run returns from debt are not as attractive as those from equity, resulting in lower corpus creation.

All said, it does not mean that investing in debt is bad. It is the proportion of the various asset classes that one must get right if you need to build a comfortable corpus. Too much of any particular asset class is bad since it either leads to increased risk levels or there is a chance that it may not even meet inflationary costs. Again, building a corpus needs continuous rebalancing of the portfolio depending again on things like new or fresh objectives coming up or when one is close to achieving one’s goal.

Financial Planning mantra #1

Always have your goals and objectives in place before making any investment.

Whether you are making the investment for tax-saving or from the point of capital growth, clarity on the objective is a must.

Most people purchase products without a real thought of the goal or objective. Simply put, I have invested in Y product because I want o make money. No time horizons are defined, no clear goal set. The result, either you sell it off too early or you invest in a long-term debt based product (where the optimistic returns are in the region of 5-6% p.a.). In either case you either end up losing money or not making enough to cover even inflation.

If one has these objectives always in mind, then one is neither affected by greed nor fear, either of which always leads to wrong decisions. There is a clear focus on achieving the pre-defined goal through a chalked out plan.

Making an investment without any goals or objectives in place, will only lead to ad hoc buying of investment products and will lead you nowhere. There will be quantity but little or no quality. A very dangerous thing to realize too late in life.

Sensex and NAVs

Today was truly a spectacular day at the markets. For the first time in its history, there were two consecutive circuits, resulting in shutting down of the markets for the day.

Nobody I know, managed to get his order through. So much for retail participation.

Till Friday, uncertainty loomed large. There was talk all around that the pre-election rally was headed for a correction and that the results on Saturday would cause the markets to slide once again. The discussions were centered around whether it would retest old lows of 8000 or would it slip to 10,000. All that vanished on Saturday morning. After a neck-to-neck race (in the early hours of counting), that dreadful feeling began to vanish. By late afternoon, there was a change in mood and the gloomy feeling was replaced by happiness. Social networking sites like Facebook and Twitter reflected the growing euphoria. Messages and comments, bouquets and brickbats poured in left, right and center. It was quite something to be a part of the ‘virtual world’, that day. Felt real!

Quite obviously all the pent up frustration was let loose on the markets today. For a change, I received quite a few calls from friends, relatives and clients. It was mostly - Should I sell my mutual funds now? / Are my investments back in the green, since markets have moved up 60%?

What we forget is when had we invested. Most people got in in 2007 and had their NAVs wiped out by 40-50% and in some cases by almost 80% by end 2008. So if your fund had a NAV of 12 when you invested, it crashed to 6. Now all mutual funds missed the up rally from 8000 to 12000. Technically, the market moved up by 50%, but NAVs moved by 20-25% only. So your NAV was only at 8. Where is the full recovery?

Another point to note is that there is actually no direct and perfect correlation between the Sensex (or Nifty) with your NAV. At best, it is a broad indicator of the direction (up or down). The composition (large/mid/small caps) of the fund will decide the quantum and direction of its movement. So there may be days when the Sensex and the NAV may move in opposite directions.

Investors should always remember that selling a mutual fund should not be based on what the Sensex is. It should depend on whether you have reached the goal / objective for which you have made the investment or a fixed percentage of return (which you had decided at the time of investing) has been achieved.

The New Pension Scheme is here!

The New Pension Scheme (NPS) has finally arrived. It was opened to the general public on May 1, 2009. I did get a few calls – asking questions like ‘Can I invest in NPS?’, ‘Should I invest in NPS’ and ‘What is NPS?’. Well I guess their initial campaign paid off - the full page color ads and coverage in the television media did what it was supposed to - generate awareness.

So in this blog I will try and bring in a little more clarity for those who are keen to know more about the NPS.

Highlights:
- This is a government-regulated pension plan.
- It is on the lines of ‘401k – retirement plan’ in the US.
- Market consists of equity, corporate bonds and government securities.
- Funds will be actively managed by six AMCs (asset management companies) - Kotak, SBI, Reliance, UTI, IDFC and ICICI Prudential.
- AMCs will make investment decisions under guidelines issued by the Pension Fund Regulatory and Development Authority (PFRDA)
- The investor is free to choose a mix between:
- Equity (E)
- Corporate bonds (C )
- Government securities (G)
- There is a ‘lock-in’ / binding period till the age of 60.
- It is open to anyone (citizen of India, resident or non-resident) between age 18 and 55 years.
- Minimum investment per annum - Rs 6,000. No upper limit.
- Minimum contributions per year are four.

Downsides:
• Returns at maturity are taxable (unlike PPF, EPF)
• There are no guarantees. Returns are market determined
• Costs can be high for those investing the in the region of the minimum amount (per annum) only. Hence it is not a good option for the small saver. The more you invest the more cost-effective it is.
• Maximum limit in equity (E) is capped at 50 percent.

My advice to all those interested is:
• The intention behind the scheme is very good.
• The PFRDA still needs to give some clarifications. Wait till the new government is in place and announces the budget, wherein hopefully it will set to rest all doubts especially on the EET (exempt-exempt-tax) front.
• Don’t rush into investing in the NPS.
• This cannot be your sole investment for retirement. Talk to your Certified Financial PlannerCM before taking the plunge.

Luring distributors to overcome the market downturn

From giving a kilo of gold to ensuring trips abroad for distributors, mutual funds are adopting new tricks to increase AUMs

In the last month or two, there have been a few mutual funds that have launched insurance-linked products. The reason – the markets are down and so are the investments into equity mutual funds. So how does one entice the investor? Spice it up with insurance. Suddenly there is a huge surge of applications into equity funds.

Now you may ask the reason why? What has the linking of insurance got to do with sudden upsurge in the number of applications? Well, the distributors are being lured with ‘exciting guaranteed gifts’ ranging from movie tickets to a kilo of gold, bikes and even a trip abroad. All that he has to do is to bring in as many applications as he can. And what are the distributors doing to win the race – if you want to invest Rs 5,000 in a mutual fund, he will convince you to sign 5 forms. Then he will fill in the forms for you and submit 5 applications. The terms and conditions in fine print are not even mentioned, forget being evaluated and compared.

Being a distributor myself, I am appalled to see fellow distributors and sales managers of mutual funds running against time to ‘log in’ applications. I am not against marketing, but this is pure self-gratification. The investor’s interest is the last thing on the distributor’s and sales manager’s mind. Both are simply trying to achieve targets at the expense of the poor investor. Knee-jerk reactions like this to increase AUMs (assets under management) will increase mis-selling and kill investor interest.

Are we here to advise on mutual fund investments or is it just another ‘grand sale at a shopping mall’? I wish that the authorities realize what is going on and put an end to this ‘gift mania’ before it gets out of hand.

Who is 'KING'? Equity, debt or cash?

This is one helluva time for investments. With stock markets down and interest rates on an upwards spiral, all the three instruments today are ‘kings’ in their own right

This is one question which everyone today is confused about. Should one invest in the equity markets now or in fixed maturity plans (FMPs) and other debt instruments or is it best to be in cash (meaning cash at bank or in liquid funds; I am not referring to bundles stashed underneath your mattress).

The answer would vary from one individual to another. Of course, it would depend on certain factors like risk profile, tenure of investment, allocation, etc. But if I were to speak from a general point of view, I think this is a good time for all round investment. In short, all the three components are king!

Equities have had a downward roller-coaster ride since January 2008. The Sensex has slipped by over 30% since the beginning of this year with sectors like real estate and banking being pummeled by over 50%. With most people being caught between the devil and the deep sea, it is more out of compulsion that they are not in a position to sell their stocks today. So is this the ‘right’ time to get into equity or equity-related instruments? Well, I would say yes. But your perspective should be long-term perspective. In the short-term, your investments will encounter more volatility. Therefore, the selection of quality funds / stocks is imperative.

Now you would ask – “what about debt?” With deposit rates moving up, both FMPs and fixed deposits look attractive. With indicative ‘post-tax’ returns of 9-9.5%, FMPs and liquid funds are attractive options for the risk-averse, who fall in the highest tax bracket. For those in the nil or lowest tax bracket, FDs present a good investment avenue.

For those who are ‘convinced’ that markets have not bottomed out yet, cash is the ultimate answer. I would still recommend you to invest via the SIP option rather than trying to catch the bottom (which, in any case, is more a matter of chance than actual skill).

This is one of those ‘rare’ times when investing in both equity and debt is a good option. It is extremely rare to witness times when good opportunities present themselves both in the equity and debt segments. And with such volatility in the markets, it is always good to keep some cash ready to invest -- either when the markets slips further or when the interest rates rise again. Happy investing!

Inflation and its impact on our investments

Price rise or inflation is a ‘silent killer’ of our investments. The return you get must be higher than the inflation rate for your investments to serve their real purpose.

Inflation is a hot topic of discussion these days. Newspapers and TV channels are full of reports that talk about how inflation, or price rise, is affecting the lives of Indians. Every week, the inflation numbers are more eagerly awaited and discussed than the Friday’s film release.

So what is inflation? And how does in impact us in the long run?

We have all heard stories of their good old days from our parents and grandparents tell us about how you could get a litre of milk in twenty five naya paisa and eat a meal out for Rs 5; how movie tickets used to cost 50 paise and more recently how with one hundred rupees of petrol in your car you could drive to office and back for a week.

“Look how times have changed. Things are so costly now,” they tell us. In layman language, this is inflation. It is nothing new. And yes, it is reflected in the prices of all items we buy.

But let’s look at it from another angle – inflation suggests that the purchasing power of money has come down. In short, for example the Rs 100 that could get us to office and back has probably become Rs 1000 today. In order to get the same service or product we have to pay 10 times more now.

This is one truth that most of us don’t budget for while planning for our future.

Inflation is a ‘silent killer’ of the investments that we are making today. A client of mine had purchased an insurance plan wherein after paying Rs 12,000 p.a. for 10 years, he was ‘promised’ a return of Rs 1,50,000 after 10 years. Looks good on the face of it? But look at the return that you are getting after an investment of 10 years – 6-odd percent per annum, which is lower than the inflation rate. So in reality your money at that time will not even allow you to purchase what it can, today. A sheer loss and a waste of time and opportunity!

Let’s take two examples and look into the future:

Assumption – you are 30 years old today and inflation rate is 10% p.a.

- If your monthly household expenses are Rs 30,000 today: at age 45 you would need Rs 1,25,000 to meet these same expenses.

- Rs 10,00,000 today would be worth Rs 2,05,000 by the time you are 45.

Whenever we buy products like insurance or invest in mutual funds or PPF, etc. with the purpose of achieving a financial goal, we must always take into account the impact of inflation on our end-corpus. It is definitely not going to be worth what the numbers today indicate. It is imperative that the return on our investments beats inflation in the long-run. Only then will we be able to meet our future requirements.

So the next time your ‘advisor’ tells you that so-and-so policy will get you Rs 1 crore in 25 years, do ask him what that Rs 1 crore will be worth then.

How can I become a crorepati?

Most of us want to become one, but ‘believe’ that crorepatis are born and not made. Wrong!

As Noel Whittaker (a well known Australian money columnist) put it: “Becoming wealthy is not a matter of how much you earn, who your parents are, or what you do….it is a matter of managing your money properly”.

Some people believe that ‘they’ cannot make money. Wrong again! Money can be made by anyone and everyone. All it requires is planning and discipline. Any investor who takes care of these factors is bound to make money in the long term. There’s nothing like a quick buck. If you made it, consider yourself lucky and not skilful.

The legendary investment guru, Warren Buffet (his net worth in 2008 is USD 62 billion or Rs 2,48,000 crore) has said: “Time spent IN, is more important than TIMING the market”.

The more time you give your money to grow the more it will grow. In other words, the younger you start investing, the more money you will have at your retirement. Each year delayed would mean a loss in earnings. Let us look at an actual example:

Investment: Rs 5,000 per month up to age 60
Expected Return: 7% per annum

Notice how the ‘cost’ of a 10-year delay is HALF the amount.

The chart above clearly indicates that the best time to invest is NOW! More so, when markets are down and the long-term picture looks encouraging. Every day, every month, every year that you delay is an opportunity lost. And the loser is no one else but you!

To conclude, as Mary Kay Ash (a business woman and author of three best-selling books) says: “Don’t limit yourself. Many people limit themselves to what they think they can do. You can go as far as your mind lets you. What you believe, remember, you can achieve.”

When is a good time to invest?

Focus on your long-term goals. And stop trying to time the market. Even the wisest pundits have failed to predict the ‘top’ and the bottom of stock markets

When should I invest? Whether the markets are up or down, this is a million dollar question that constantly looms over an investor’s mind. Should he/she invest now or wait for the markets to fall even further. This waiting for a ‘more opportune’ time goes on and on. As a result, time passes us by.

Over the last two years, I have seen people withhold the decision to invest, despite my spending considerable time with them to convince them to make the investments. Their reason - they feared that the market has ‘topped’ or they had the ‘greed’ to wait for the markets to hit the bottom.

It is not possible to time the market. Even the wisest pundits have more often than not failed to predict the exact ‘top’ and the ‘bottom’ of stock market.

So is there really a ‘right’ time to invest or is it merely a myth or an illusion? The answer is a YES and a NO. ‘No’ because there is nothing like a right month or a date to begin. And ‘yes’ the right time to start (if you already haven’t) is NOW!

There is an old adage – ‘buy low and sell high’. But reality is a lot different from that. Most investors actually end up doing the reverse. They get into the market after the prices have risen because they believe that the ‘bull run’ is back. Such investors tend to panic the minute the prices begin to slip.

Investors must have a horizon for all equity or equity-related (mutual funds) investments of at least 5 years. The longer the better, since only then will they realize the ‘power of compounding’. Discipline and planning are crucial to achieving the goal that the investor has set (be it his own retirement or children’s education or marriage, or any other goal).

As a basic thumb-rule, during volatile markets (like the one we are currently witnessing) invest every time there is every dip. There should be no fear in the investor’s mind if he/she has a long horizon. In the near term, he/she may see negative returns because of volatility. If he looks at the big picture and has a long horizon, he should just keep plugging in the money. The returns will happen in due course.

If you wait to time the market, fear (of seeing short-term negatives) and greed (of trying to catch the bottom) may leave you stranded, thereby seriously affecting your long-term goals and objectives.