SIP is meant to be a vehicle for disciplined, regular, long-term investment on an auto pilot mode. It is meant to average rupee costs and provide an opportunity for all – those with limited as well as high savings – to participate in smart investment options.
Whether you invest Rs 1,000 a month or Rs 10,000 a month, rupee cost averaging works alike for all. You buy through ups and downs using an SIP, whether you are a small retail investor or a High Net-worth Individual (HNI).
Equities generate returns when they traverse across up and down market cycles – providing you opportunities to buy cheaper in down cycles and generate wealth in up cycles. SIPs, by their very nature, help you navigate these market cycles by averaging costs.
Can You time the market better?
Well, perhaps you can. But can you do that every time? Moreover, if many people could do that, then there would not be many market opportunities in the first place. Besides, there are so many extraneous factors that always belie even the top investment gurus.
Due to multiple known and unknown factors, market fluctuates at various levels and exhibiting volatility. These market fluctuations are harder to predict by most of the investors. It is the time in the market that matters, not timing the market. Hence, if you come to terms that you cannot always time the market, you would simply run an SIP and allow your SIP to time your investments well for you. And that too, even while on an auto-pilot mode! Of course, nothing prevents you from adding to these SIPs with occasional lump sums.
But will there be lump sum available at that particular down market cycle when the NAV reduces in that particular SIP Folio?
May be not all of you will have lump sum investments to average it.
We at Ventura Suceder has a solution for this….
Lets allocate 10% of our equity SIP Allocation in Liquid Funds with the same folio number and use the NAV alert option from our portal. As and when the NAV comes down, we get an alert and can switch the amount of liquid folio to Equity Folio. So we are averaging costs by starting an SIP in Equity and further averaging with liquid fund available in the same folio.
If we have allocated some amount separately for the above mentioned equity funds to average in the down market cycle we would have invested at a discounted price in 3 instances which occurred at 3 months back, 6 months back and 1 year back.
In worst case we can average our Investment yearly once...worst to worst case we can average every 5 yr as there will be an election year in India. This would generate more Alpha for our Investments.
My conclusion and advice to all the Ventura Suceder clients is to start LIQUID FUND SIP ( 10% of your existing Equity SIP) to double average your investments. We shall allocate this to the same folio number of your existing equity fund, utilise NAV alert option, switch at right time and generate more returns.