The share market is a rollercoaster ride, particularly for new investors. News headlines shout about volatility in the market, and the idea of investing your hard-earned money into something that’s always changing can be scary. You may ask yourself: “Is it really a good time to begin a Systematic Investment Plan (SIP) today?”
At VSRK Capital (AMFI Registered Mutual Fund Distributor), we know what you’re thinking. But we also think that SIPs can become a wealth multiplier even in times of volatility. Indeed, market volatility can work to your advantage if you’re investing via an SIP.
Understanding SIPs and Their Role in Volatile Markets
A Systematic Investment Plan (SIP) enables investors to invest a fixed amount at regular intervals in mutual fund schemes. This periodicity has the following benefits, particularly when the market is unstable:
Rupee Cost Averaging: SIPs allow you to purchase more units at cheaper prices and smaller units at expensive prices, thus averaging the cost of your investment over a duration of time. This is especially helpful during bearish phases of the market because it allows you to purchase more units when prices are cheap, which works in your favor when the market begins rising.
Power of Compounding: Systematic long-term investments via SIPs leverage the power of compounding, where earnings generate their own income. Small monthly savings can amount to a significant chunk in the long run, leading to huge wealth.
Disciplined Investing: SIPs promote a habit of systematic investing, refraining from the tendency to time the market. This discipline can reduce knee-jerk decisions driven by emotions during turbulent markets.
Is It Time to Invest in an SIP?
While market fluctuations can be distressing, it also presents opportunities for long-term investors. Here’s why one should invest in an SIP in such times:
Market Cycles: Markets tend to experience cycles of highs and lows. Trying to time the market by holding back for the “perfect” time can be difficult and often results in lost opportunities. Remaining invested through SIPs helps you reap the benefits of market recoveries in the long run.
Long-Term View: When your investment time horizon is five years or longer, short-term volatility of the market decreases. SIPs are well-suited to long-term goals, and you can ride through volatility and harvest overall market gains.
Historical Performance: Historical facts validate long-term equity market performance, but not in the short run. By sticking with your SIP even during losses, you can possibly gain from the subsequent rise in the market.
Key Points to Consider for First-Time Investors:
Prior to starting an SIP, you should research the following points:
Investment Objectives: Determine your financial objectives. Are you planning to invest for retirement, education, or generating wealth? Your investment objectives will decide which category of mutual fund you can invest in.
Risk Tolerance: Determine the level of risk you are most comfortable with. Equity schemes carry higher possibilities of return but higher risk volatility, while debt schemes carry lower risk and are less rewarding.
Fund Choice: Select mutual funds that suit your investment objectives and risk tolerance. Look at the fund’s past performance, expense ratio, and experience of the fund manager.
Diversification: Avoid putting all your money in a single fund or asset class. Diversifying across different funds and sectors can help spread risk and optimize potential returns.
Regular Monitoring: Although SIPs are a set-and-forget approach, it’s important to review your investments from time to time so that they remain aligned with your financial objectives.
Conclusion
Initiating an SIP during a volatile market can be a good move for long-term investors. By being careful regarding your investment aim, risk tolerance level, and being self-disciplined while investing, you can quite easily handle the ups and downs of the market. We at VSRK Capital take utmost care of your investment process and assist you in making the right decision, which will put you on the right track to achieving your financial targets.
FAQs
How to select the best mutual fund for SIP?
The appropriate mutual fund is based on a number of factors:
Your risk appetite: As mentioned above, decide how much you want to take.
Your goals: Why are you saving?
Your investment horizon: For how many years are you investing?
The fund’s past record: Past performance is not a guarantee of future returns, but you can have some idea about the past of the fund.
Cost ratio of the fund: The mutual fund’s annual charge. Lower, the better.
Experience of fund manager: Experience and performance of the fund manager.
Take expert advice: You may also like to take the services of a VSRK Capital financial advisor. We can assist you in determining your financial needs and suggest appropriate mutual funds.
Can I invest in multiple funds via SIP?
Yes, you can invest in multiple SIPs in different funds. But make sure that your overall monthly investment is within your financial means and objective. Diversification among different funds can help you spread risks, but do not diversify too much, as it may make portfolio management complicated.
