Since the Sensex is riding high, is it not better to wait for equity fund NAVs to fall before investing?
Yes, it's always better to invest at lower levels and exit at higher levels. That's the dream plan for every investor. But, is it possible to time such investments? You really never know what's the best time to purchase units of a particular mutual fund. It would be a guessing game. Markets may rise one day and fall the other day. Accordingly, the fund's NAVs will rise and fall. Moreover, how should one go about deciding what is low and what is high?
The Sensex is currently hovering over 5000-mark, which according to you is very high. But if it rises another 1,000 points to touch 6,000 in a few months, won't your calculations go wrong? Of course, your calculation may work in your favour if the Sensex slips 1,000 points. Frankly speaking, timing the market is nearly impossible. But even if you think that the Sensex is very high, refer to our cover story ('Too Hot To Handle?') in our magazine Mutual Fund Insight, November 15-Decemebr 14, 2003 issue on page 22.
Thus, instead of waiting for equity fund NAVs to fall, invest regularly and systematically in mutual funds irrespective of booms and busts. It is the surest way to reduce the risk of investing, because you lessen the possibility of buying at market tops. Also, no one is smart enough to anticipate all the moves, both up and down. Invest in funds with the idea of holding on to them for the long haul.
Clearly, time can be a better friend than timing. If you are not a professional money manager, your best bet is probably to buy and hold. Through this strategy, you can take advantage of the power of compounding.