As the broader indices continue to rally higher, investors may consider this an apt time for the profit-booking, and not necessarily a good time to foray into equities.
Some, on the other hand, may opt to buy equities based on their projections that indicate further hikes in the near term future.
Retail investors, therefore, may decide to buy or sell based on their financial goals and future projections.
Wealth advisors, however, suggest that retail investors should invest with a long-term vision and that too in small ways via systematic investment plans (SIPs) instead of intending to time the markets.
Investing on a regular basis in small doses offers the advantage of rupee cost averaging. Let us understand what exactly is the rupee-cost averaging.
What is rupee cost averaging?
The rupee cost averaging is a time-tested investing strategy drawn from the famous dollar cost averaging phenomenon coined by Benjamin Graham, underscoring the significance of averaging out of cost at which stocks and funds are purchased.
When stocks and funds are purchased at different price points, the cost of acquisition of securities is averaged out, thus maximising the scope of earning gains at the time of redemption.
The advantages of rupee cost averaging (RCA) are offered by SIPs.
Mutual Fund SIP accounts stood at 6.53 crore, and the total amount collected through SIP during May 2023 was ₹14,749 crore.
In the past three preceding months, the corresponding figures were ₹13,728 crore, ₹14,276 crore and ₹13,686 crore for April, March and Feb, respectively.
When mutual funds are bought in lumpsum, the prevailing price at which they are purchased could be high or low, thus necessitating the need to time the markets.
“Investors should invest in a staggered way. This way, they can average out the cost of acquiring assets. This concept works in the rising as well as falling market,” says Sridharan Sundaraman, founder of Wallet Wealth.
Renu Maheshwari, a Sebi-registered investment advisor and co-founder of Finscholarz Wealth Managers, says retail investors can invest anytime as short-term predictions are meant for traders only.
“There is no bad time to invest. Investment in NIFTY or Sensex is a good idea today, yesterday and tomorrow. The Indian economy is poised for long term growth and every one can benefit by investing through benchmark indices,” says Ms Maheshwari.
To sum up, retail investors are advised to follow an investment discipline and invest in small portions on a regular basis, monthly or weekly, via systematic investment plans. This way they can maximise their chances of earning higher returns upon acquiring mutual funds at different price points.