Thursday, October 16, 2008


I must admit this is a good question to ask. The Most of the common investors always try to invest their hard earned money when Sensex or Nifty go up. A very large number of investors bought mutual fund when sen sex moved up from 18,000 to 21000 Points. As the Sen sex touched 10,750 figure there are hardly any retail investors to buy funds. Is it a good trend?

It is not correct practice to time the market. None have benefited greatly by such an act.Timing the market is a difficult proposition. Rather investors should invest their money in a disciplined way. Systematic Investment plan is highly recommended for any retail investor. Many people have asked what should we do now when financial storm is lashing the market and economy. Should we keep our money in FMP? or Should we use FD of the Bank only? Should we totally avoid the stock market?

I have thought over the matter again and again .I felt at present our approach should be as under:

1. We should first calculate how much money do we have for investment? once we arrive at a figure then find out what is our age? If our age is fifty then we must deduct our age from a heavenly figure of 100. In the instant case the result would be fifty. Now, this figure of fifty should be considered as a percentage(%) that could be saved or invested in equity. Now we need to calculate out of this fifty percent how much we have already invested in equity through shares or through mutual funds. In case we have invested already forty percent then there are 10% left for fresh investment at present. In case you are risk averse then invest this 10% in Fixed deposit of Bank. If still you can withstand risk this 10% can be invested under the systematic investment plan for a period three years. It is expected that the storm lashing the financial world would calm down by 2010-11 or little later. You would there after make a handsome gain.

2 Should we avoid investment in equity? asked a reader of my blog.My reply was he can in case ne is risk averse. But he does not expect then to make money later. It will take time to get better return out of his already invested money since he had invested it when Sen sex did reach 21000 points.

3"Should we take out our money now, asked another reader. The investment has lost 50% value?" My reply was: It is a wrong perception of yours. You have not lost money. At present your loss is a notional loss. Perhaps you may lose further notionally. As soon as you take out money the loss will be the real loss. Can you really afford it? Have patience. Do not act in a hurry. What goes up it comes down. And what goes down it would come up especially stock market. Only thing it would take time. During 1932 stock market crashed. The great depressed followed. but it came up !The year 1945, saw a great rejuvenation in USA. They have not looked back. Germany faced worst financial situation after world war but by Sixties both Japan and Germany became one of the few richest nations of the world. We need not forget that destruction would be followed by rejuvenations. We must not panic now!

4. " I want to book loss once sensex reaches 15000 points to avail tax benefit, some time before the year ends. I would put back the money in liquid fund and invest through STP in mutual funds. when sen sex goes down thereafter I would be buying units in low cost. Can I not do that ? Would that not be a profitable to me?" Yes, that would be. But are you sure that the sensex would again go down just after you book the profit? What happens if sen sex goes up instead? Nobody can predict the behaviour of market. Not even Warren Buffet. We should be a investor and not a juggler! If you can predict surely that after you book profit sensex would further go down then surely go ahead and do it as you wish. But as a matter of practice I do not recommend such thing. IF you have extra money, in case you are capable of taking risk go ahead and invest systematically for long term and make money in the right way. Congratulations to you.

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