Driven by fears of coronavirus, markets in India have been falling sharply over the past 4-5 days. On 12th March, Indian markets were down 20% from their peak. As of the time of this writing they have rallied smartly from another 9% correction. However at 9,985 on the Nifty, they are a hefty 16% lower than their all time high. In an interview with Mint on 12th March, Taher Badshah, CIO equities, Invesco Mutual Fund said that market valuations were 20% below their long term average after having trade at a 20% premium for several years. In other words, a relatively good time to buy.
However as a mutual fund investor if you are looking at entering the market, there are two ways of doing so. You can invest a lump sum amount or you can set up an SIP (Systematic Investment Plan) which invests a fixed amount in the market every month. "Normally I would recommend an SIP due to averaging and cashflow reasons," said Amol Joshi, founder, Plan Rupee Investment Services. An SIP averages out the purchase price of a mutual fund because it puts money into the fund at different points of time and hence different Net Asset Values (NAVs). Many investors have monthly cash flows such as salary income which makes an SIP a convenient tool for them.
"However given a correction of such magnitude (15-20%), an aggressive investor should do a lumpsum investment. A moderate investor can put in money at 2-3 tranches. If you have existing SIPs, continue them," he said. While for an average investor, SIP through equity mutual fund is the best way to invest in the markets, investors who have very strong risk appetite could consider lump sum investments at this point.