Which is a better option for long-term investments — investment in mutual funds via a systematic investment plan (SIP) or lump sum investments? Shouldn't lumpsum investments be better, especially since a larger amount can get invested for a longer period?
Both these options can be exercised by an investor to invest in any asset class. However, I think you are referring to investment in equity mutual funds. You are correct in your statement that a lump sum investment enables one to invest a larger amount for a longer period of time. However, what if the time you chose to make that lumpsum investment was near a cyclical market peak, as seen in January 2008, or a bottom as seen in October 2008? In the first case, you may still be sitting on a loss, whereas in the latter you may be enjoying huge profits. On the other hand, had you invested in equity mutual funds through SIP, you would probably be somewhere in between. The concept of SIP is that normally, it is not possible to predict market tops or bottoms and therefore one should make a disciplined investment in the markets at regular intervals to get the benefit of rupee cost averaging and reasonable investment returns over the long term.
Is it a good time to start investing in banking scrips? If so, are public sectors banks a better bet than private sector ones?
Banking stocks would normally always benefit in a falling interest rate scenario, coupled with business and economic recovery. Since the current interest rate cycle seems to have peaked out, it could be a good time to start accumulating banking stocks. There are attractive investment opportunities available in both the private and public sectors, and you would do well to take a stock-specific investment approach based on proper research.
I have been investing in three multi-cap funds for the past four years through a monthly SIP (Rs 3,000 each). The funds are not performing as per my expectations. In fact, they have been lagging their peers as well. Should I continue investing in these funds or redeem my units and choose other schemes?
In case all of your selected funds are lagging their peers, you need to take a serious relook at them and try to understand why they are performing so badly, since four years of underperformance of all three funds to their peers is quite disappointing. If need be, you could redeem your investments in such funds and invest the proceeds in other well-performing funds as well as switch your SIPs to these funds.
The writer is CEO, Dalmia Securities. Views expressed are his own. Send your queries at firstname.lastname@example.org