This question rolls in the minds of thousands of people, and the answer to this question boils down to one thing- that is doing proper research about various industries and considering your own risk appetite
Here are some of the key points one needs to consider before getting into conclusions:
India has become a victim of domestic as well as global downturns. After a setback from Union Budget 2018, the domestic market has shifted focus into the global volatility which is turning cautious due to premium valuation, increase in interest rate and risk of de-globalization.
Deposit and lending rates are increasing and also inflation is on the higher side, which has resulted further cut in valuation.
But the good news here is that according to recent news RBI is expected to provide additional liquidity to the bond market, which will provide some support to the market especially the financial sector.
Considering the Scams in the country
Considering the PNB scam of approximately Rs 12,000 crore, many more scams have started to surface up in the market and the trust factor in public sector banks is on a decline. The main point for consideration here is the implementation of an appropriate and stricter framework which is not prevalent in these banks and that causes the common public to mistrust these banks.
So, next important thing that you will be considering now is which sectors are performing very well in recent times and which ones are not, according to our analysis following sectors have done well in recent past
- Banking and Financial Services
- Cement and Construction
- Consumer Durables and Non-Durables
And considering the volatile sectors in the market we have the list as follows:
- Rural and infrastructure oriented companies.
So now considering this list one thing you need to understand, there is no good or bad time to invest in markets, it’s just the timing and research about better-performing sectors that you should be considered about.
Also one more thing to consider here is that investing in lumpsum amounts in one sector may lead to a wrong strategy since internal as well as external forces act in the market and volatility is highly uncertain
We strongly recommend you for going for the SIP that is Systematic Investment Plan, wherein every month some amount from your salary is deducted for investments.
STP as an option of investing money in:
STP refers to the Systematic Transfer Plan whereby an investor is able to invest lump sum amount in a scheme and regularly transfer a fixed or variable amount into another scheme.
Description: In case of a volatile market, STP helps the investors to periodically transfer funds from one scheme (source scheme) to another (target scheme) and help them save the effort and time by compressing multiple instructions required for redemption from one scheme to invest in the other into a single instruction.
Difference between SIP and SWP:
One important thing for an investor is to consider the difference between various forms of investment
There will always be a difference in returns as you are investing through different methods.
STP is for investors who want to average their investment cost in the fund. This also indicates the risk appetite one wants to follow while choosing STP.
Again, SIP is for the long term and helps in rupee cost averaging and achieving your financial goals, while lump sum investing is done on a particular day and the investor gets one NAV, that is the NAV on the day he invested.
For example, you have invested a lump sum amount of Rs 5 Lakhs in a fund at an NAV of Rs 15. Whereas, your friend has invested Rs 5 Lakhs through 100 SIP installments and got different NAVs on different dates. Therefore, his average acquisition cost may be more or less than the acquisition cost of Rs 15.
Moreover, you are investing in one go whereas he is investing in a staggered manner over 100 months. Therefore, while you are benefiting through compounding, he is benefitting from rupee cost averaging. Therefore, of course, the returns will be very different.
Let us see a live example – A has invested Rs 3 Lakhs in Franklin India High Growth Companies 5 years back and the current value is Rs 9.11 Lakhs and the annual return is 25.31%. Whereas, B has invested in the same fund by way of monthly SIP of Rs 5,000 over 60 months.
B’s fund value is now Rs 5.32 Lakhs with annual return of 23.58%! As you can see from the above examples the returns and final amounts are very different as the method of investing is also different. In fact, both should not be compared at all.
STP allows you to start an SIP from a low-risk debt mutual fund to a higher risk equity mutual fund.
So the brief introduction, background, and comparison is in front of you. Rest the decision lies with you, with which option to go ahead.
Since the market is highly uncertain, it is never accurately right to say it is a good time to invest or not. You need to consider the entire industry’s view and research in order to arrive at a firm decision.
Starting an SIP is always a safer bet. And if you wish to invest lump sum, explore investing using STP.
Disclaimer: the views expressed here are of the author and may vary with due basis.