Sunday, August 30, 2009


During the Third week of May, after election results were announced, the share market has gone up. It is possible that market may come down soon. But that should not deter investor to stop buying equity. For the long run equity is the king and this is the time to invest as market goes down through systematic investment plan(SIP) in mutual fund.

According to an expert, volatility is the friend of astute investors. It is actually the volatility that would make you rich.

Prolonged bear phase is not welcome by new and uninformed investors. But astute investors always welcome volatility and bear phase in share market .According to Warren Buffet equity is the king in the long run. Why? Because, in the long term, the share market is bound to have fluctuations and volatility. The volatility ensures better return if invested with prudence. In case investors adhere to systematic investment plan and Systematic transfer plans he or she is sure to benefit. This is the point which most of the casual investors always ignore. For example, in case index would have remained static at 5900(from 2000 to 2004) none would have been able to make money. Since the sensex went down from 5900 to 2800(in 2002) and then again it climbed up to 5900 (in 2004) astute investors made lots of money. When market went down in 2002 people who continued to follow SIP route and kept on buying the units at lower cost they reaped great benefit. As market rebounded the investors were benefited because their cost of acquisition was much lower during the bear phase. So to be frank enough bear phase should not be looked down always. Investors of mutual fund must keep it in mind certain important points.

1 .Investors should not time the market always. Investment can be made at time .Only points to be remembered is buy in phased manner.

2. All the money at the disposal of investors should not be invested in equity. Depending on the age of investor and income of investor it should be invested proportionately in debt and equity.

3 The money required for day to day expenses should be invested in debt funds & bank fixed deposit.

4. The balance of investment in debt and equity should be changed as the years pass bye.

As investors advances in age more should money be allocated in fixed income and less should be earmarked in equity.

5. While share market recovers never invest lump sum money at one goes. It should be through SIP or through STP. My personal preference is STP. You can invest in lump sum only when you are sure bottom has been touched already. (This is very difficult to predict). Can you really predict the bottom? So avoid putting money all together.

Dhirendra Kumar , well known mutual fund expert recently said “Any investors who have followed the time honoured prudent advice would be sitting pretty today, largely unaffected by the current turmoil of 2008. He felt that the market value of your investments may be down today but since you do not need any of it for the years to come, it doesn’t really matter. Long before you will need the money it would have had a chance to grow again. (Personal Finance, The telegraphs, 3rd November).

The loss in front of the eyes of investor today is actually notional loss. This would be made good when market takes a turn for the Good. But where is the guarantee that market is going to rebound? In share market no body can predict the behavior of the market. There was no guarantee that market would touch the bottom similarly there is no

Guarantee that market would surely move up. But our experience reveals that market is going to go up sooner or later as there would be growth in the economy in the long term. If the world can recover from great depression in 1927 there is no reason why the turmoil of 2008 would not be able to be handled. No doubt time is difficult. Depression can be seen all around but efforts of all the authorities are also genuine to give a push for the growth of the economy.

I would like to quote the remark of Dhirendra kumar “Despite the crashes, equity is a far safer option over the long run. The real danger to your financial well being is not the market crash, but from the insidious effect of inflation’. Yes, equity is not really unsafe, what is really unsafe is our mentality and fear psychosis.


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