I did an unscientific sms poll asking people the same question: ” 5 year view – If I have money to invest in the equity markets. Should I do a 12 month STP or a 24 month STP?”. The persons covered included 2 CIOs, 2 CEOs a few fund managers, 3-4 research people and a bunch of relationship managers, friends, etc.

The consensus was towards a 12 month sip, a couple of people suggested 24 months, one Head of Wealth management said 6 months, one sales guy said SIX months, one sales guy said LUMP-SUM investment should be made now! One investor with tons of investing experience (he has a tendency to get carried away though) said SIP should be for 36 months.

One CIO, One CEO, One Wealth Manager of a foreign bank (which aggressively pushes mutual funds) – told me- that one should hold on till June – when the picture will be more clear. What were their fears:

a. Slowing down of Indian economy, and de growth in world economy.

b. A hung parliment with Mayawati as a ‘king maker’ – she is bound to become India’s PM – 2009 or 2014.

c. A dramatic downsizing of the financial sector in India (he predicts a shut down of life insurance offices, mutual fund companies, brokerage houses – all this will impact the cash inflows into the equity markets -so a double whammy!

Frankly it is difficult to time the market, but remember Ken Fisher and Warren Buffet have made money by staying away from the market during its mad times…So I guess the market will continue to do what it does…we need to do what we have to do.

My take after reading, thinking, talking about, investing, advising and generally being around in the planet for almost half a century, and investing for more than a quarter of a century is as follows:

1. the equity market generates very good returns for most people who spend enough time in the market

2. the returns on your portfolio is : Market returns MINUS expenses MINUS underperformance. If you are worried about under performance invest in an index. Or in a good fund house with a great track record – to me Hdfc mutual fund is quickest on recall. However DSP, Naren Sankaran, and Templeton may not be far behind.

3. If you have cash put it to use (as a STP) – to be invested over the next 12-18 months.

4. If you have a SIP going, let it go on. Unless if you are in a financial mess and have to battle EMI vs. SIP – when your prioritising will come into play!

5. There are 2 people I know who make classic mistakes in a bull market – either in terms of salary negotiation, or asset allocation. Both these people are now convinced that they should be in non-equity assets (one just put 2 million rupees in the Tata NCD issue) and the other has put about Rs. 50 million in a liquid fund. These to me are excellent signals of end of a bear market (but I am not sure whether I am confusing a noise for a signal, so be careful).

6. The steepest part of the rise could be say 8% for 2 days in a row – and that is your 2 years return in the debt market! So staying out of the market could be expensive too – you need to understand and accept that too.

Remember if you entered the equity market in 1930 – long before the end of the ‘depression’ was over (actually it happened in 1932) you would still have been in lots of money by the 1940s!

I am now getting convinced that the market can go down further, but will I put 8% of my investible surplus – the anwer is yes! A one year SIP means just that.

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  1. It is customary to be optimistic when the market is down and be pessimistic when the markets are up..however here lies the difference! 2002 to 2007 was a golden period of Indian equity markets – thanks to a global boom. Indian corporates who have (still) stuck to the same level of optimism and overheads will bleed. Job creation – people selling atrociously priced mutual funds and life insurance policies will vanish. Back office, software support etc. at bfsi business will suffer. The FII buying will vanish till another asset bubble is created. So I guess your advice may be right over the long run, but over the next 12 months the market will go nowhere! Sorry for being a party pooper!

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