SIPping at all times

The return of good mood on Dalal Street has changed a few things for investors. The stocks, which were hammered six months ago, are looking attractive at higher levels. Even reality stocks, which had slid down the price curve, are beginning to look investment worthy.

ULIPs: For long-term savings
While six month is a long term for traders, it is definitely not the case for long-term investors. In fact, long term investors rarely have had to worry about intermittent volatility in equity markets and the recent recovery is a case in point.

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To start with, if you are an investor building a corpus for long term, you need to get cautious or look at the option of profit booking closer to the event than depend on the herd mentality of investors. As you are aware, during the market meltdown in 2008, investors were advised by various experts to discontinue their SIPs, though market weakness is an excellent opportunity for accumulation.

Those who stopped their SIPs would surely be ruing their chances as Sensex has rallied more than 50% in a matter of 180 days. This in turn has made even one-year old SIPs give positive returns.

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The biggest advantage with SIPs is that they help investors take advantage of volatility with minimal effort and offers excellent opportunity when investors have long horizon at their disposal. Does it mean it is not a good idea to have SIPs in a rising market? The answer depends on the goals of the individual.

For instance, a professional with a couple of years of income earning years, is better off by booking profits than make fresh commitments. Such professionals need to keep away from fresh investments, even if market situation is buoyant.

In fact, rising market will push up the cost of acquisition and may stretch the tenure of waiting. In fact, that was precisely the scene for investors who began their investing through SIP in 2006. As you are aware, it was an upward curve for the Indian market from 2005-2008 and the second quarter of 2008 saw the beginning of downtrend. In hindsight, it probably appears that those who put in lump sum in 2006 are better off!

Why you must choose the right ELSS fund

While post mortem is always an easy task, investors can follow some simple strategies when it comes to SIP. The most important factor is to have minimum time horizon of five years for an SIP as this ensures the investor to be part of upward and downward trends. Even during the market meltdown, many funds invested through SIPs managed to hold on to their gains when the period of investment was around five years.

Another important aspect of SIP is to go for diversified funds for long tenure, as they are less risky when compared with sectoral or theme funds. For instance, if you are looking at building wealth for child's education over a period of 10 years, sign up for a large-cap focused fund or value-investing fund as it provides cushion against market volatility.

Make tax planning a family affair

Simple SIP facts:

• Invest in SIP for a minimum period of five years
  
  
• Look out for profit booking options a couple of years before the need for funds
  
  
• Be with a large cap or diversified funds for long term wealth creation
  
  
• Don't discontinue your SIPs when the market falls.
  
  
• Have a basket of funds for SIP if the amount is large
  

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Srikala Bhashyam is the Managing Partner of RS Consultants. She runs an investment-consulting firm in Bangalore to provide consultancy in the areas of financial planning and media. In the last 15 years, she has worked with top publications in different locations. The primary focus of all her columns is to simplify the nuisances of Finance, which has attained a new look over the years. Besides being a columnist, Srikala has also been closely associated with some of the prestigious book projects.

The author can be reached at srikala.bhashyam@gmail.com

The views expressed in the article are the author's and not of Sify.com.

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