Should I wait for a market dip or invest my savings now? (24-year-old with 14 lacs invested)

Ans: You are 24 years old and earning a monthly salary of Rs. 75,000. You’ve already accumulated Rs. 14 lakh in mutual funds and have Rs. 4.8 lakh in your savings account.

Your mutual fund portfolio is split as follows:

Large Cap: 50%
Small Cap: 29%
Mid Cap: 19%
Currently, you are investing in small-cap and mid-cap funds through SIPs and lumpsum investments. It’s clear that you are focused on long-term wealth creation.

Understanding Market Timing
Waiting for a market dip before investing might seem logical. However, predicting market movements accurately is nearly impossible. Markets can remain high for extended periods. While waiting for a dip, you may miss out on potential gains.

The Power of Regular Investments
Investing regularly, regardless of market conditions, can be a wise approach. This strategy is known as rupee cost averaging.

Consistency Wins: By investing regularly, you reduce the impact of market volatility. You buy more units when prices are low and fewer when they are high.

Long-Term Focus: Your focus on long-term wealth creation aligns with this strategy. The long-term growth potential of equity markets often outweighs short-term fluctuations.

Deploying Your Savings Account Balance
You have Rs. 4.8 lakh sitting in your savings account. Deploying this amount into the market all at once might feel risky given the current market levels.

Staggered Investment: Instead of waiting for a dip, consider staggering your investment. You can invest a portion of the Rs. 4.8 lakh each month. This way, you’ll enter the market gradually, reducing the risk of investing a large amount at a peak.

Systematic Transfer Plan (STP): Another option is to move your funds through an STP. You can transfer a fixed amount from a liquid fund to an equity fund over several months. This balances the need to stay invested with the caution of market timing.

Portfolio Diversification and Risk Management
Your current portfolio is heavily weighted towards small-cap and mid-cap funds, which are more volatile. While these funds have high growth potential, they also carry higher risk.

Balanced Allocation: Consider maintaining a balanced portfolio. Large-cap funds, with their stable and relatively lower-risk nature, should remain a significant part of your portfolio.

Risk Assessment: Regularly assess your risk tolerance. It’s important to ensure that your portfolio aligns with your long-term goals and risk appetite.

Reviewing Direct Funds vs. Regular Funds
If you are investing directly in mutual funds, you may want to reconsider.

Direct Funds’ Disadvantages: Direct funds often lack professional guidance. You may miss out on crucial market insights and portfolio rebalancing.

Benefits of Regular Funds: Investing through a Certified Financial Planner (CFP) can offer valuable advice. A CFP can help you navigate market complexities and optimize your investment strategy.

The Case Against Index Funds
You mentioned investing in small-cap and mid-cap funds. If you’re considering index funds, be cautious.

Limited Flexibility: Index funds simply track a specific index. They can’t adapt to market conditions, which may limit returns.

Actively Managed Funds: Actively managed funds offer the potential for higher returns. Fund managers can make strategic decisions based on market trends.

Emergency Fund Considerations
Before investing all your savings, ensure you have an adequate emergency fund.

Liquidity Matters: Keep enough liquid funds to cover at least six months of your expenses. This cushion is crucial for unexpected situations.

Emergency Fund Allocation: Consider keeping a portion of your savings in a liquid fund or a fixed deposit. This provides quick access to cash when needed.

Investing More Than Your Salary
You’re currently investing Rs. 85,000 per month, which is more than your monthly salary. This is an impressive commitment to wealth creation. However, it’s essential to maintain a balance.

Sustainable Investing: Ensure that this high level of investment doesn’t strain your finances. It’s important to maintain a healthy balance between saving and spending.

Regular Review: Regularly review your budget and expenses. Make adjustments as necessary to ensure you can sustain your investment plan over the long term.

Final Insights
Your disciplined approach to investing at such a young age is commendable.

Instead of waiting for a market dip, consider staggered investments or an STP to deploy your savings. This reduces the risk of entering the market at a high point.

Maintain a balanced portfolio and ensure your investment strategy aligns with your risk tolerance and long-term goals.

Working with a Certified Financial Planner can provide you with expert guidance and help optimize your investment plan.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in