Tactical allocation (or investing a lumpsum when the market falls significantly) is advice given by many investment experts these days. So every mutual fund investor wants to know whether he should invest a lumpsum when the market falls sharply.
First, do you have money which you can invest for seven to 10 years? You should think about investing a lumpsum in a sharp correction in the market only if you have money to invest for the long term. Otherwise, just stick to your regular investments. Do not invest the money you need for short-term needs.
Two, how will you identify the correction? As per the standard definition, a fall of 10% or more is considered as a correction. However, many individuals set their own targets when they want to invest more money in the market. For example, you can decide that you will invest some extra money if the markets fall 5%. Remember that nobody can accurately predict how much the market will fall or when the market will start going up. So, don’t think this is a foolproof strategy. This is one way to invest money in the market when you think valuations become more attractive.
Where should you invest the lumpsum? A regular investor should stick to the schemes that are in line with his horizon and risk profile. For example, if you have an investment horizon of seven years and a conservative risk profile, you can invest in a large cap scheme. If you have a moderate risk profile, you can invest in flexi cap funds.
Some investors, especially well-informed investors, invest in a particular theme or sector they will benefit from the most. We don’t advocate sector schemes to regular investors because it’s not easy to predict entry and exit in these schemes.