Monday, March 1, 2010

When is a good day for investment now ?

We have received lots of mail from our readers asking us whether they can start investing now. This question has been raised for the simple reason that in our earlier article on investment it was recommended to hold on to the money in hand to enable them to invest after correction. The correction, as expected, has set in. By now the market has corrected around 17% from the high of January. It is possible some more correction may follow before or after budget is placed in Parliament on26th February. But investors can put their money from now onward provided they follow the systematic investment route. To be frank enough genuine investors should not try to time the market and should stick to long term investing. What is the meaning of long term? The investment horizon should be for a period of five years. Due to higher volatility of share market some time adequate returns are not delivered in short term, most of the time. Only rarely high returns are delivered in one years time. Last year(2009) was an exceptional year when market delivered a very high return within a year. This was unusual. Now the question arises what should investors of Northeast do?

The investors of Northeast are generally new investors. It would be prudent for them to be cautious. We have advised number of times that no investment should be made short term .It would be prudent for investor with low risk appetite to keep away from the market. They can keep investment in Bank FD or at best in Short term Debt fund. Investors with moderate risk appetite should invest in MIP and Balanced fund for a period of five years. Only persons who can withstand volatility in the market should subscribe to Shares of the stock market or subscribe to diversified Mutual fund of four and five star rating of Value research.

I must admit that investors of today are lucky that the provision of Systematic investment plans have been introduced most of the Fund houses. When in 1998 on Templeton introduced SIP system most of the people took it to be a market gimmick.. But it proved to be a great plan. The return of investment is SIP for the same of money for the same period is much higher than lump sum payment for the same amount for the same period .For middle class and lower middle class it is always difficult to make Lump Sum payment. They can save slowly and steadily while they keep earning every month. Earlier
Systematic investment could be carried out annually , six monthly or weekly. But of late a few fund houses have introduced Daily “SIP” provision. This would be greatly beneficial to daily wage earners and for self employed people like Doctors , Advocate, Shop keepers who receive fees daily from their clients, but do not know how to account it for.

Many investors of northeast has kept away from share market for higher chances of losses. They kept money in Bank FD which hardly earns them anything. ultimately low return and higher inflation of food product make them frustrated. I would like to recommend highly now for such persons to invest in Diversified mutual on a daily SIP plan. This plan was not available earlier. In such plan it would be difficult to loose money if kept on investing for a period of four to five years .Rather it would provide an avenue for excellent return. Srikumar Bandyopadhyay, an investment analyst, calculated and showed that systematic monthly investment in reliance vision fund gave 32.44% return while lump sum amount gave annualized return of 26.14% compared to BSE Sensex’s benchmark return of 13.40% for a period of 10 years. Daily SIP plan is a recent phenomenon and at present ING, BharatiAXA, IDFC and Sahara have come up with Daily SIP. The Daily SIP is a better option compared to weekly and mothly option. The share market is known for its volatility but nobody knows on which days market would fall or rise. In daily SIP the investor would gain everyday when market fall because it would buy shares Cheaper. It would gain when ultimately market goes up.It should be clearly understood that share market do not remain static . It travels up and down.depend on the sentiment of the economy .The daily SIP is the only method when investors gain both the ways provided keep invested for longer time.

One of the expert mentioned that while investing Rs1000/- per day ,through daily SIP, from First January 2010 till Fourth February 2010 an investor gained Rs21,853 whereas the lump sum investment mode could have provided a return of Rs21,252 only. This difference would be stupendous over a period of Five to ten years. Not too many fund houses are offering daily SIP. But it can be organized by on line purchase daily by investors without any extra charge.

My advice to our young investors would be to go ahead and invest through Daily
SIP. House wives would be able to take care of investment daily by saving some expenses of family. It is most ideal for Doctors and Advocate to park their daily income from their clients and get great return without any income tax.


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