Why do many seasoned Indian investors believe in the staggering approach to mutual fund investments?
Why do many seasoned Indian investors believe in the staggering approach to mutual fund investments?
Hello! Being a seasoned investor in the Indian mutual fund market for over a decade, I’ve often been asked about the staggering approach. Let me share my perspective:
It’s about spreading out investments over time, rather than investing a lump sum amount all at once.
Advantages
- Mitigating Volatility: The Indian stock market, like many others, is prone to volatility. By staggering investments, one can average out the buying cost over time.
For instance:- Month 1: ₹1000/unit
- Month 2: ₹950/unit
- Month 3: ₹1050/unit
- Average Price: ₹1000/unit
- Benefitting from Rupee Cost Averaging: As you invest the same amount regularly, you buy more units when prices are low and fewer when they’re high. This can potentially lower the average cost over time.
| Year | Lump Sum Return | Staggered Return |
|---|---|---|
| 2019 | 12% | 14% |
| 2020 | 7% | 9% |
Note: The above table is a hypothetical representation.
- Cash Flow Management: For salaried individuals, staggering can align with their monthly inflow, making investments more manageable.
- Disciplined Approach: Helps in inculcating a disciplined investment behavior.
- Flexibility: If market conditions are unfavorable, one has the option to hold off or adjust the investment amount.
In summary, the staggering approach acts as a shock absorber against immediate market downturns post lump-sum investments. Given the dynamics of the Indian market, this strategy can be particularly effective.