One must follow a methodical approach for investing the substantial part of the portfolio, tells Dhirendra Kumar
Should one follow the accumulation and averaging technique in mutual funds, for example, investing more when the market falls by five per cent?
- Lakshmi Narayan Reddy
One should generally avoid this temptation of being tactical with your investment and instead follow a methodical approach for the substantial part of the portfolio. And be disciplined. Invest in equities regularly, save for the long term and increase it with the rise in your income. So if you are investing Rs 5,000 every month this year, and your income rises next year, start investing Rs 7,000.
Even if you want to be tactical with your investment, do it only if you have some extra money. It should be a tiny portion of your portfolio. Park it in a fixed-income fund and articulate a rule if you can. Sticking to the rule can be very difficult because markets are unpredictable.
So if you decide to invest Rs 50,000 when the market falls by 5 per cent, the fall may not just stop there. It can fall further. What will you do then? Or what if the market doesn't fall for a reasonable period and just goes up? So it's always better to follow a systematic approach.