These days we often here analysts talk of Systematic Investment Plans, wherein an individual should invest small amounts in stock markets every month.
What About Investing Lumpsum In The Stock Market?
If you want to invest lumpsum in the stock market the best way would be to time the market. If you had invested money last year, you would have come out with stupendous returns.
This is because the Sensex has risen by a whopping 30 per cent in the last one year.
Does this mean that you can make 30 per cent by next year, if you invest today. It's almost impossible to believe that the last one year returns would also be applicable in the next one year.
It would be a miracle if the Sensex jumps another 30 per cent in the next one year.
So, if you are investing a lumpsum amount, you better get your timing right or else you could lose money. For example, with the Sensex at around 28,700 points it is trading it almost 17 times one year forward earnings.
This is already too high and hence getting solid returns from here on looks difficult.
Problem Is Also Where You Invest?
The Sensex has given 30 per cent returns in the last one year. But, some stocks have not given any returns at all.
So, if you are investing a lumpsum you better get the stock pick right or else you have lost the game. Take a look at some stocks that have been laggards in the last one year.
|Stock||Price on March 18, 2014||Price on March 18, 2015|
|NMDC||Rs 129.95||Rs 131|
|Jindal Steel||Rs 256||Rs 175|
|Reliance Industries||Rs 890||Rs 868|
|Tata Steel||Rs 341||Rs 331|
|Gail||Rs 361||Rs 381|
|ONGC||Rs 331||Rs 309|
|Cairn India||Rs 329||Rs 223|
As can be seen from the table, if you invest a lumpsum you need to get your stock pick right. From the Nifty we have so many stocks that have given negative returns or their returns do not even match bank deposit interest rates.
Therefore, there are two things that you must remember when you want to invest a lumpsum amount in the stock market. One is that you must get your timing right and second is that you should get your stock pick correct.