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Investing a lump sum in small-cap funds

Instead of a lump-sum investment, spread the investment over a period of time, says Dhirendra Kumar

Is this the right time to invest a lump-sum amount in small-cap funds?
- Akshay Bansal

Never. If you have the temptation to invest a lump-sum amount to generate some substantial returns, then resist that temptation. The way to do that is to spread the investment over the next three to six months by doing a weekly SIP. Assuming that you have six lakh rupees to invest and you want to invest now because you are thinking that the market has gone down and you have already identified that small-cap fund, still I would urge you to divide that money by 24 and invest 1/24 part every week. Although you will be able to win some and lose some by following this method of investing, it will make sure that you will never run away from investing in markets.

The problem of doing it at one go is that if you face a 20 per cent decline immediately after you have invested, you are very likely to lose your interest in investment, take your money out and then never invest due to the disappointment. A major part of our investment success does not depend on choosing the best fund or the best sector or the best stocks or the best segments - the small-cap or the mid-cap, but it depends mainly on how you behave in the worst of times and the best of times. Your behaviour is going to be one of the biggest determinants of your investment success. We are humans and we will behave in a very natural, instinctive way of getting fearful or getting greedy on different occasions. So, you will have to devise a mechanism of dealing with yourself and the simplest mechanism to do it is averaging your investments methodically.

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