Spread your equity investments over a period of time to mitigate the risk of catching any market peaks
09-Dec-2013 •Research Desk
Salaried individuals can use SIPs and it works for them. But those who are not salaried, do not have funds available every month. If I have a lump sum right now, how important is it to systematically invest that money? Is STP the best way to go?
We suggest investors to spread their equity investments over a period of time to mitigate the risk of catching any market peaks. For instance, if funds are valued high on the day you invest, and correct the next day, your investment will fall in value. This may be acceptable to some but new and small investors are most likely to give-up investing altogether. It is anyway unnerving to invest a large sum of money at any point.
Your plans can take a backseat if you get too anxious about your money. Therefore we suggest inexperienced investors to invest gradually in equity. Spread your investment even if you do not have a regular income. Park your lump sum holding in a fixed income fund and use a Systematic Transfer Plan (STP) to put that amount in equity. This would average the high and low phases of the market over time.