Investment strategies for small investors in volatile mkt

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Below is the verbatim transcript of Roongta's interview with CNBC-TV18.
 
Q: The most common mistake that small investors make is to invest in a rising market thereby reducing their returns. What is a good method to avoid falling in this trap? How can value investment planning work?

A: A systematic investment plan (SIP) over the long-term helps the investor to do rupee cost averaging; when the market is down one gets more units, when the market is up then one gets less. A value investment plan goes one step further, rather than investing a fixed amount it forces one to invest more when the market is down. Therefore, not only one gets more units, but because one invests more money the overall return is higher and reverse to, when the market is doing better it forces not to put in money, in fact if one follow the pure value investment planning principles, one should also sell. However, practically when it is followed, most people would put the minimum down to zero rather than put a sell on it.

So, simply if one follow it in a disciplined manner, just let it run its course, it forces one to invest more when the market is low, it forces one to invest much less or even zero when the market is high and thus in the long-term gives great return.    

Caller Q: My annual salary is Rs 8.5 lakh, out of which I want to invest Rs 50,000 per annum. Please advise which mutual funds, SIPs, exchange-traded funds (ETFs)I should go for which will give me good returns?

A: You must invest with a goal in mind and in your case it is retirement. If Rs 50,000 is the figure that you are talking about and given that you are young, you should, at the current stage put in a bulk of your money, long-term systematically into equities. If you have access to expertise then you can put it into a largecap fund but keep reviewing it. I would advise you to put 90 percent of your money in a largecap fund on a systematic basis, something like Franklin India Bluechip Fund or ICICI Prudential Focused Bluechip Equity Fund .

If you do not have access to expertise maybe you can look at Nifty index fund so that you do not have to keep reviewing the performance of the fund. Therefore, roughly Rs 3,800 into index fund, roughly Rs 300 in a public provident fund. Just remember even over 30 years assuming aggressive returns of 14 percent and 8.7 percent, this will total up to about Rs 1.77 crore but in today's value, if you take 8 percent inflation, it is just about Rs 17 lakh. So, may not be adequate for your retirement kitty. It is a good plan, go ahead and invests in this manner. However, you would need to supplement it if this is what you want to build your retirement kitty with.