Saturday, February 5, 2011

Chapter 6 - When to invest in Mutual funds

This is a bit tricky question and most of the investment advisory suggest  not to time the market .
But all successful investors reap huge profits only by timing the markets . When nobody else is buying and markets lying at their lowest point that is the best time to invest in markets.

If  you see the Rakesh Jhunjhunwala investment history , he bought stocks at cheap rates.

Question is What is cheap rate of a stock ?
SBI @ 2600 Rupees is cheap  or    Colagate and Pamolive @ 816 is cheap ???

Earning on 1 share of SBI is 155 Rupees where as for Colagate it is 29 Rupees.
SBI 's 1 share is earning more than 5 shares of Colagate.

so SBI  is cheap than Colagate.
SBI Price to Earning Ratio (P/E or PE ) is 15
Colagte Price to Earning Ration is 27.

Most Important thing to note in share market is Growth potential of company for next 5-8 years and present Earnings per share and PE. 

So When Sensex is going down and Earnings of companies are intact then it means shares are cheap. 
Best time to invest in mutual fund is Recessions when markets are going towards rock bottom.

If you are buying at low rate then obviously you will reap more profit quickly when markets will start climbing again .

But we are not God and we can say which is the lowest point in share market ?

so one simple alternative is to do  Blind SIP investment .

Blind SIP : Whenever you awake and find that u have monthly surplus of 1000 rupees you start monthly SIP for 3 years. and you forget that . Doesn't matter  market are at peak , or at  bottom .

Another better option is Active SIP Investment.
Active SIP investment :
a) Starting SIP when markets at near life time high (SENSEX PE @ 20 --  >25): Wait for few months correction can come any time.
    Start SIP with half of the monthly surplus amount. Like if you have monthly surplus of 5000 invest monthly 2500 . Save rest of the amount for coming opportunity. Accumulate and invest in one go when Market PE come down to 13-17 .

b) Starting SIP markets are at their lowest point in last 2 -1 years  : (Market PE should be around 13-16)
Start with lump sum investment when markets start rising from their low. And start SIP for next 2 Years .

c) Start SIP any time , Skip SIP for the months when Markets hits their hights , Invest saved amount when Markets come down at 10 -15% or more . Restart SIP when you thing time is coming .

Remember that you have to invest only in best Mutual fund so that when time comes you can more unit of that fund and (Average ) reduce the price of fund units .

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