Neither lump sum investing nor invest-and-forget, here's the best investment style (2024)

By Dhirendra Kumar

During the lockdown, for the last few weeks, I’ve started a live Q&A session on YouTube for Value Research Online members. Although the idea is similar to the Sunday evening radio show I’ve been doing on All India Radio for the last 15 years, Value Research’s YouTube show is an hour long and video makes it much more conversational.

Obviously, at any point of time, there are themes that dominate the questions that members ask. In recent weeks, there are a lot of questions about the post-Covid recovery and the shakiness of some types of debt funds. The collapsing returns from fixed deposits have made a lot of savers look at debt funds but the credit and liquidity problems of debt funds have made the process fraught with worries.

One other class of questions that gets repeated is that of people who are looking for advice on very long-term equity investments. During the Covid crisis, many people have realised that equity investments made over long periods, specially if done through SIPs, stay far into the positive territory even during quite volatile times. Such data is easily found on Value Research Online and becomes a bit of an eye-opener for savers.

However, some of the questioners tend to wish for a ‘fill it, shut it, forget it’ kind of an investment approach, for those who remember the old Hero Honda advertising copy from some three decades ago. Here’s a typical question, “Can you recommend a fund in which I can invest a lump sum amount and then forget about it for 20 years?” I don’t consider this to be a realistic question.

The answer to such a question—which is asked surprisingly often—is quite obvious. There is no investment in this world that can be made and forgotten for 20 years, least of all something which is based on equity. I mean, let alone equity even if you make a bank deposit you would have to look occasionally at the solvency of the bank. Twenty years is a long time.

I’m reminded of a well-known fund manager who was asked on a business channel about his having held HDFC Bank for 15 years. He replied that he had not held it for 15 years but for 60 quarters. Every quarter, when the bank’s numbers came out, he was fully prepared for some shock because of which he would have to sell off his holding. I’m sure that he did not realistically expect to do so, but must certainly had been prepared to do so. This kind of an answer is somewhat rhetorical, but like many rhetorical statements, it makes an important point.

In a sense, even my listeners’ questions about making investments and forgetting them for two decades are rhetorical questions. The 20 years is likely (I hope) just a figure of speech that means ‘a very long time’. Unlike forgetting, that’s a sentiment that I fully endorse. Lump sum investments are out, invest-it-forget-it is out, but investing over the very long term is definitely in.

The formula is well-tested, choose a small set of funds and start SIPs and don’t stop. The coming months and years are a great time to start because regardless of the excitement that we are seeing right now, businesses are going to have a bad time for a long time to come. That means that you will be able to build the basis of good returns easily by investing at low NAVs. This is the foundation for the future that you need.

There will never be a basis for forgetting about your investments because over a long period of time, good funds can go bad and bad funds can get better. If you look back over the previous 20 years then this has happened many, many times. Surely the same will happen in the future too.

So investing for 20 years is great, but not in a lump sum, and certainly there is no question of forgetting about anything.

(The author is CEO, Value Research)

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