Time in the market, not timing the market

by Vivek Kaul / DNA Money

As the rains hit the windowpanes, his thoughts flashed back to almost 10 years, when sitting at Marine Drive, he was waiting for the first rains to come. There was a young girl who burst into a dance as soon as the rains came.

“Do you believe in love at first sight or should I walk by again?” he had told her. Those were the days of romance. Since then, he concentrated on his career and building some sort of a financial stability.

Almost 10 years back, he had started investing a regular amount of Rs 5,000 in the growth option of Reliance Growth Fund. He made this investment on the first of every month. During those days, as even now, equity investing was all about market timing. Market timers are basically investors who try to enter or leave the stock market on the basis of where it is headed. They essentially try to spend a lot more time trying to figure out which way the market is headed.

He never believed in market timing. “What is the right level for the market at any point of time?” His answer to this question was, “Who knows, at least I don’t.”

The regular investment had held him on good stead, and on July 24, 2006, the value of Rs 6,10,000 he had invested in the Reliance Growth Fund over the years had amounted to nearly Rs 50 lakh — Rs 49.06 lakh to be precise. The fund had given him an average return of 38.51% per annum.

Influenced by his habit of regular investment, around five years back, she had started investing regularly in the growth option of Reliance Growth Fund as well. And to catch up on all those years of not investing, she decided to invest Rs 10,000 every month, double the amount he invested.

On July 24, 2006, the value of Rs 6,10,000 that she had invested in Reliance Growth Fund had amounted to nearly Rs 25 lakh — Rs 25.23 lakh to be precise. The fund had given her an average return of a whopping 59.47% per annum.

Both of them had ended up investing the same amount of money and even though the average return she got was more than his, the fact that he started early had ensured that his investment had grown to almost the double of hers.

His philosophy of early investment and giving time for the money to compound, had clearly worked.

And as they sat listening to the rain, she had broken the silence. “You know, you keep talking about regular investing, but I can tell you that a lumpsum investment works better. If you had invested Rs 6,10,000 way back in June 1996, instead of investing Rs 5,000 every month, like you chose to do, your investment as on July 24, 2006, would have amounted to almost to Rs 1 crore, or Rs 99.88 lakh to be precise”.

“Theoretically, you are right. But back then, I did not have that kind of money. Also, I didn’t know that the market would have risen to such high levels,” he replied.

(The example is hypothetical)

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