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Timing the market and sector-specific investments

Dhirendra Kumar highlights challenges associated with timing the market and why diversification matters more.

Is it the right time to invest or should I wait till September 2020? Which sectors will boom from September 2020?
- Bala Sairam

I am sorry, I don't have answers to your questions. However, with regard to the first part of your question, I have some suggestions. Ideally, you should have invested on March 23, 2020 because that was the time when the market was at one of its low levels. But we got to know it only once the time has gone by and since then, the market has been up by about 15-20 per cent. So, if you try and time the market, it will be very difficult to invest. If the market goes up by another 10-15 per cent, all the losses will be gone and then it will become extremely difficult for you. Alternatively, if you invest today and if the market goes down further, you will start to panic.

So, I say that you should take a middle path, that is whatever money you have, spread it over the next eight months. In doing so, you will be catching some highs and some lows. Since the market has become very volatile, seeing a few days of high and a few days of low quite dramatically to the magnitude of 2-3 per cent has become a matter of routine. So, I would say that divide your money and do a weekly SIP for eight months i.e. about 34-36 weeks. And by doing so, you will be somewhere in between the highs and lows which will save you from all that anxiety of when exactly to get in.

And with regard to which sectors will boom from September 2020, I'm waiting for a very diverse boom. However, I have one suggestion that when you invest in a mutual fund, your investment naturally get diversified and that is the simplest way of doing it as we don't know which sectors will do well and which one will do poorly. But then, we also have exceptions in all of them. We will have disappointing sectors wherein some great companies will do well and then we will have great sectors wherein some companies will disappoint you. So, in a way, sectors don't really matter. What ultimately matters in a mutual fund portfolio is how the fund manager is using his brilliance or selectivity or sector preferences. So I would say that choose a good fund, a good fund manager who has reflected wisdom, character and diversity at all times, reflecting those processes that will come in handy. Don't try to be very precise and maximise your return.

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