When To Invest?

Timing the market has long been a favourite sport of traders, market pundits, speculators and investors. This is notwithstanding the alarmingly high rate of failure- for veterans and novices alike. The current year has been particularly volatile, with a constant tussle between the bulls and bears. So, making the right calls has become all the more difficult.

But timing the market need not be an entirely futile exercise. Especially if the main objective is to minimise the risks. One strategy that can be adopted is to enter the market at lows and buy at dips. Usually, retail investors tend to do just the opposite and enter the market when it has run-up quite a bit. In doing so, they often end up catching the tail end of the bull run and substantially lose their corpus when the market is on its way down.

The key, therefore, is to zero in on days when the market would have the greatest possibility of hitting lows. We, at FE Investor have attempted to do just that. Our analysis of data from January 1982 throws up interesting facts that can help investors better their chances of maximising their returns.

Our analysis shows that the first five days of a month are the best time to invest in the market. This is because the market tends to be at its lowest during these days. Since 1982, out of the 342 months that the market has been in operation, it has registered the minimum value on these days for 101 months. This means the market has been at its lowest for about 30% of the time during the first five days.

This knowledge can be particularly useful for investors who take the route of systematic investment plan (SIP) to invest in the market through mutual funds. For instance, investors can opt to debit their account on the 5thof every month as the market will be at its lowest during the first five days and their chances of buying more number of units go up significantly. Investors are generally advised to buy through SIPs because of the advantage of 'rupee cost averaging', which means if the market goes up, the units one owns will increase in value and if the market goes down, the next monthly payment will buy more units. Buying at dips is an effective way of accentuating this process.

The next best chance of getting the maximum returns are the last five or six days of a month when the market is at its lowest for 27% of the time. You are likely to get the lowest returns between the 11thand 15thof any month when the markets are at their lowest for only 8% of the time. So, avoid putting in money during this period.

Our analysis shows that it doesn't matter whether one invests in the first half or the second half of a month. Of the 342 months, the number of months the first 15 days have edged past (in terms of returns ) the next 15 days is almost the same. And bull and bear markets have no bearing on the returns in the first and second halves of the month. In the year 2008, for instance, the market tanked in each of the halves thanks to the global economic crisis in the aftermath of the collapse of the investment bank Lehman Brothers.

The market has given higher returns in the second half of the year (60%) compared with the first half (40%). Furthermore, the market has given positive returns 16 out of 28 times in the second half of the year. This means the chances of the market rising are much higher in the second half of the year. So investors would do well to invest in the first half of the year when the Sensex (^BSESN : 17880.83 -56.37) values are lower as they can then see substantial returns when there is a run-up in the market in the second half.

If we look at quarter on quarter data for 28 quarters, the third quarter has outperformed while Q4 has lagged behind the rest. Since the fourth quarter comprises months of January to March, this once again brings to the fore the fact the market tends to underperform in the first half of the year. Q4 has also given an average return of 4.6%, which is behind that of Q1 and Q2. All this implies that the first three months of the year are perhaps the best time to invest in the market.

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