Systematic timing

PERSONAL FINANCE

Turbulent markets make an investor jittery. But they also offer great buys. While a value investor will purchase stocks and hold, another method of making most of the situation is through Systematic Investor Plans (SIPs) of mutual funds.

SIPs are plans where you earmark a particular sum each month or each quarter to be invested in a fund of your choice. You can opt for equity-based as well as debt funds depending upon your risk profile.

Says Hemant Rustagi, managing director, Wise Invest Advisors, "Investment through SIPs has two big advantages. It creates a disciplined mindset and gives the benefit of cost averaging."

In other words, if the market goes down, you are able to acquire more units of the mutual funds because of the falling Net Asset Value (NAV) of the fund.

Agrees Suresh Sadagopan, certified financial planner, "For long-term financial goals of five to 10 years, it makes great sense to go for a monthly SIP as your cash flows will match your investment pattern."

However, in a highly volatile market, especially like the way the market has been in the recent times, you can use SIPs in a different manner. That is, instead of investing in one single plan and on a single date, you invest in a number of plans and on different dates.

"Weekly SIPs in different funds allow you to take advantage of different themes, philosophies and fund management styles," reasons Rustagi.

In other words, a staggered approach towards investing in SIPs can work very well in a volatile market. "This can help you time the market to a great extent," says Sadagopan.

Let us see how this can be achieved: Suppose you have Rs 40,000 to invest per month. You could divide it into four different funds of Rs 10,000 each. Also, you could set dates like 5th, 12th, 19th and 27th of the month to invest this amount. This way you can take advantage of the turbulent market.

As mentioned above, if one week the market tanks, you can purchase more units of the same fund. Similarly, when the market goes up, you will be getting lesser units at a higher price. Buying through the month will help you to achieve cost averaging through the different funds.

So who should go for such investing patterns? Sadagopan feels that there are two kinds of people who use such strategies "" investors who have a large sums of money, and the risk averse, who would like to keep a strict eye on the market.

SIPs are a great way to build up a capital base in the long term to meet your financial goals. The idea is to build a habit of disciplined investing, and to get you to regularly set aside some portion of your funds to get best results.