Let’s consider two different scenarios,
- Market crashes after your investment
- Market rallies after your Investment
It’s obvious that we feel great when market rallies after our investment is made, but what if the unexpected happens?, you lose a considerable portion of your investment. And More over you will feel bad that, you do not have any money left, as you are fully invested and couldn’t make use of the crash.
So the better way is to segregate your investment, divide your investment into 3 tranches & invest in the portfolios one at a time with a time gap. After LTCG tax of 10%, you will be taxed 10% (If profit is above 1 lakh) if you are selling after 1 year and you will be taxed 15%, if its short term holding period.
So one would prefer holding for a shorter period (3 to 6 months) to make use of short term price fluctuations in markets. So consider the following approach to invest, if you want to make decent returns with less downside.
3 Tranches: 50000/3=16666
You need to invest only Rs.16,666 for the first month, and second month another Rs.16,666 and third month you final investment Rs.16,666. This way you have reduced the, even if there are huge market correction in first month, you will not lose much since you invested only 1/3rd of your capital.
By the time we reach fourth month, the holding period of first tranche investment is over and freed up for reinvesting in 4th month. And you can repeat the same process. This way your risk is considerably low and you can get to make decent returns.
We have tested this approach vigorously in Indian markets and it really worked well. We have built an algorithm to pick best performing stocks on each sector and invest in them every month based on the above approach. It has delivered better return than index with consistently with minimal downside.
So my friend, that’s the best way to invest. We share many such information related to algo trading/system trading through our. You can follow us to get constant updates.