Get out of herd mentality

Upon the advice of many people, I liquidated all my investments to book profits by June-end. I was waiting for markets to correct and now I am cursing all those who gave free advice to book profits. My money in a savings bank account is earning 3.5 per cent. Should I invest right now or wait until the bears take over? -Manjunath

Your case is a perfect example of the fact that it is futile for an individual investor to try and time the market. The best an individual can do is to have an investment time horizon in mind, and invest regularly in different asset classes.

In your case, though you have not mentioned how much you have gained from your investments, you should derive satisfaction from the fact that you booked profits at a time when the stock markets were already well past their previous highs. When one tries to time the market, the aim should be to buy at lower levels and sell at higher levels, rather than buying at the lowest level and selling at the highest.

Going forward, nobody can tell you with any certainty how long this bull run will last. The best approach is still to invest small amounts regularly. Rupee cost averaging will ensure your losses are restricted, even if the markets fall steeply.

Regular investing will average out your cost, while the debt allocation will provide stability to your portfolio. And you are likely to earn more than the 3.5 per cent offered by your savings bank account.

The time horizon of my investment is between three to four years and I have a moderate risk appetite. I have exhausted the benefits accruable under Section 80C and want to know if I can invest in ELSS (equity-linked savings schemes) even if tax benefits are not a consideration. I personally feel some such schemes are tried and tested, and hence more reliable than an entirely new fund. -S P Gupta

You can surely invest in an ELSS even after exhausting your Rs 1 lakh exemption under Section 80C. True, there are some ELSS funds that have produced returns far in excess of some of their diversified equity counterparts. Having said that, the matter of a three-year lock-in still remains.

Given that today's investor is spoilt for choice in the diversified equity category, you need not risk your money by locking it in for three years. One should always have the benefit of flexibility of redeeming funds at one's convenience.

I plan to start investing in mutual funds through the SIP (systematic investment plan) route, but am not able to decide the optimum frequency of instalments. Should I invest monthly, quarterly or half-yearly?
-Aman Chhabra

More than anything else, the optimum frequency of an SIP should be a function of your convenience. You should first ascertain how frequently you can set aside funds for investment without pushing your finances to the edge. While there is no doubt that SIP is the best way to invest in equity funds, there is no sound basis for saying a particular frequency of investment is the most profitable. If you can invest comfortably every month, why not go for the monthly option? In this case, the concept of rupee cost averaging may also work better for you.

Moreover, whether you invest monthly or quarterly will not affect the performance of your portfolio, as much as your discipline over the long term. Therefore, invest through the SIP, but choose the frequency more convenient to you.