Amazingly stupid thing to ask. Seriously amazingly stupid. Of course lumpsum IF YOU HAVE THE UNDERSTANDING AND STOMACH to take volatility.
If I had Rs. 1.5 crores to invest today, I would take a bet on 3 shares, period. Rs. 5 million in each share and go to sleep. However if a school teacher with Rs. 2 Lakhs to invest came to me as a first time investor what would I do? I would suggest that she put her money in a short term fund or a money market fund and do a STP of Rs. 10,000 per month over 20 months. Sure she has a 20 year view and is not bothered about what happens in the interim. So a fund manager answer would be “put Rs. 200,000 in my fund”. As a financial planner my answer would be do a STP (systematic transfer plan) over a 20 month period.
I KNOW THAT A LUMPSUM is likely to get a better return – especially say over the next 2 years, HOWEVER, over a 20 year period it will make NO DIFFERENCE whether it put it as a short sip or as a lumpsum.
Suppose I put Rs. 200,000 in a fund and the market tanks say 20% – and the index falls 25% – she may be SHOCKED at the fall in the value of her investment.
Suppose I buy Xyz shares worth Rs. 5,000,000 and it falls 25% i.e. it becomes Rs. 37,50,000, I KNOW I CAN sit it out and bide my time. I did buy Indigo at 1100, at 900, and at 802 – knowing that I am a long term investor. Whether the school teacher will have the patience to wait it out is what one has to worry about.
So for most FUND MANAGERS what they have to answer is “will the share bounce back or will the index bounce back”. However for the IFA he has to answer “will the client be able to sit silently during the bad times” / “will the client PANIC and sell EXACTLY when the market tanks. That is a far more difficult thing to worry about.
Take an example like Shanti Gears. I bought it for the first time when it was 65 or thereabouts – we heard that the owner was trying to sell. Looked good. Bought at various prices including Rs. 140. If this teacher could not have sat through the rough rides SHE COULD NOT HAVE earned from her portfolio what I earned from my portfolio.
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