Stay Put on Lump Sum Plan

After continuously being on the rise for more than 18 months with no major correction, the Indian equity market saw the first signs of cracking up in the month of October 2021. Since then the equity market has shown signs of consolidation and is still down by 6 per cent from its peak. Many of you who had missed the earlier rally might be thinking of turning aggressive now and perhaps giving a serious thought to making a lump sum investment. My advice is to wait for some time. Buying on every dip in the last one year would have made sense but not right now as the situation has changed a lot over the past 12 months. 

The valuation for the equity market is not in a fair zone. Even inflation is rampant in many parts of the globe including India, which is likely to push the interest rate up. Besides, liquidity, which was lifting the prices of every asset, is also going to dry up now as major central banks will start dialling back the quantitative easing programme that they started in the wake of the pandemic. All these factors may lead to volatility in the equity market with a downward bias. Therefore, investing a lump sum amount might not be a wise thing to do at this juncture. 

Lump sum investment in any asset class, be it equity or debt, is recommended when the valuation of that asset class is subdued. Currently, when the valuation of the equity market is above its long-term average, investing in a staggered manner is recommended. You can choose a systematic transfer plan in case you want to invest in lump sum. Therefore, the best thing to do now is to continue with your SIP and avoid feeling the fear of missing out. Our cover story of this issue dives deep and explains when to opt for SIP and whether it is the right time to go for lump sum.

SHASHIKANT