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With the Nifty50 index shooting past 21700 and making new lifetime highs, one set of people who are really unhappy are those who don’t have any equity investments at all. For those who have missed this bus, or should we say rocket, the feeling can be terrible.
If you don’t act, you see people all around you making money while you don’t. If you do, given your luck, the market may crash and leave you with losses on your first equity investment. This is the situation that the famous SIPs or Systematic Investment Plans were invented for. In this episode of Question of Money, I, Aarati Krishnan, am going to tell you how you can still invest in equities if you haven’t done so already.
If you saw our earlier episodes, you will know that stock markets can behave in a volatile way. Just when you think they’re going to go only up, you get a big fall. The Indian stock market has now been on a bull run for the last four years, and therefore a correction cannot be ruled out. But on the other hand, if you keep waiting for a correction to invest and it never arrives, you lose out on long-term wealth creation opportunities. People who have been sitting on the sidelines from Covid times will tell you how painful this can be!
So, if you are an investor who has zero money in equities here are four things to do now.
1. Avoid investing directly in stocks and buy equity mutual funds instead.
I’m saying this because as a new investor, you will find it difficult to choose what stock to buy. In a rising market, there will be the temptation to skip all the research and buy stocks based on tips from someone. These are likely to be stocks that has run up a lot and is a market favourite. When markets correct after a bull run, the stocks that ran up the most also tend to fall the most! In market crashes, some individual stocks tend to crash much more than the index. Those who bought the favourite infra or real estate stocks in 2008 lost 70 or 80% of their money and had to wait 15 years to see break even. With mutual funds, you will own a basket of stocks, which will cushion the fall. Plus the fund manager will be periodically refreshing the portfolio by selling overheated stocks and buying better valued ones. This will mean losing less money to a crash and recovering faster.
2. If confused about what fund to buy, buy index funds
Index funds simply own the basket of stocks that make up a popular market index like the Nifty50 or Sensex30. For newbie investors, a Nifty fund or Sensex fund or Nifty 100 fund which invests in the top 100 stocks in the market, are good enough bets to create wealth. Buying these large-cap oriented funds is also a good idea because large-caps, like we said in the earlier video, tend to fall less than mid or small-caps in a correction.
3. Instead of investing a big lumpsum in the index fund at one go, sign up for a SIP.
In the Indian market, if you hold your equity investments for a long time (7 plus years) you do tend to make good returns, even if you invested at an absolute market peak. Folks who invested in a Nifty50 fund in January 2008, the peak of the previous bull market have made a 9 per cent annual return till date. But the problem is that, if you invest at the peak, it is tough not to lose your conviction during a correction and sell in panic. People who bought Nifty50 funds in January 2008 when the Nifty was at over 6200 levels, would have seen it crash to below 2800 in just one year. Only those with nerves of steel or prior market experience would have held on through this crash to see the 9% return today. This is very tough for newbies.
4. SIPs are systematic
In a SIP, you don’t invest all your savings at one market level. You spread it out over many months. If you have Rs 1.2 lakh to invest, you can sign up for a 12- month SIP and invest Rs 10000 a month regularly for the next 12 months. This way, if the market crashes you will be able to invest at lower levels and make higher returns in the long run. If the market never crashes and keeps running up, you will still be investing and can get rid of this regret about missing out! You may like to know that the unlucky people who started investing in Nifty50 funds through SIPs just before the market crash of 2008 have made a lot of money today. The Rs 1.2 lakh they invested through SIPs from January to December 2008, is worth Rs 6.6 lakh today.
(Host: Aarati Krishnan, Producer: Anjana PV, Edits: Darshan Sanghvi, Camera: Bijoy Ghosh & Siddharth Mathew Cherian)
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