SIPs Over Dips: With Markets Frothy, This Market Veteran Bats For A Sustainable Strategy

Mutual fund houses saw massive inflow and not calls for redemption on June 4, when the markets fell. This does not only show that Indian investors have shifted their focus on to the long-term investment strategies, but also displayed the interest to take the risk of buying on dips.

Buying the dip is not about ability but about courage, according to Dhirendra Kumar, founder and chief executive officer of Value Research.

“You don’t know if it will dip further tomorrow. If you buy the dip and it turns out to be a profitable deal, one needs to appreciate the risk taken,” he said.

The markets have been consistently hitting record highs as Nifty hit a record high of 24,401 on Thursday. Both Nifty and Sensex have logged the best monthly gains for the year in June.

However, betting on buying on market dip should be an occasional affair and not a substitute for a sustainable investment strategy, according to Kumar.

“You need liquidity to buy the dip and it’s risky to buy the dip with only one or couple stocks in your portfolio,” he said.

Keeping a portion in cash for tactical investments might be a call that investors can take, but nothing beats a regular investment plan. A more sustainable strategy would be to earn, save and invest in a diverse portfolio methodically, according to him.

A diversified portfolio is compromised with concentration when investments are made only in sectoral and thematic funds. Themes and sectors present stories of the recent past performance and investors tend to chase this, Kumar said.

“The reason they did well will be the reason they might not do well in the future,” he said, about the wave of investors flocking to sectoral and thematic fund. The category became the second largest among actively managed equity schemes, with assets under management of nearly Rs 3.4 lakh crore.

Despite the wave of inflow into this category of concentrated investments, Kumar emphasises the need for a diversified portfolio that will tide over long market cycles.

What works in the long term is investing your money in equity, according to Kumar. Having a systematic investment plan will help build this balanced portfolio.

The net inflow into SIP has been 50% which is completely neutral, according to Kumar.

Some investors who are sitting on profits may have decided to book profits, while some may have decided to move their investments into new fund offers, he said.

“The net that you see is usually money that is recycled into a new fund. And is not really money that is walking away from the industry,” said Kumar.

Insisting that investors stay invested, Kumar recommends that one needs to try and save and invest more as their income increases.