Since the unfortunate market crash witnessed by all investors worldwide in March 2020, the Indian stock markets have more than doubled. As the Indian stock markets relish the position of all-time high, there are numerous queries that might cross the minds of new investors. Is SIP the right mode to invest in mutual funds? Should they continue to invest their money in mutual fund schemes through SIP mode of investment? Is SIP or systematic investment plan the best bet for both market ups and downs? We will try to answer these questions in this blog.
What is SIP?
SIP is an investment tool that permits investors to invest in the markets in a systematic and disciplined way. Under this mode of investment, a fixed sum of money in invested in particular mutual fund scheme at periodic intervals for fixed duration. The periodicity of the intervals can be daily, monthly, weekly, quarterly, or even yearly.
Benefits of SIP
One of the biggest benefits of SIP mode of investment is the rupee cost averaging it offers to individuals. Rupee cost averaging helps to average out the total cost spent on buying units of mutual fund schemes. This is because an investor ends up purchasing lesser units of mutual fund schemes when the markets are high and vice versa. Another benefit is the power of compounding it provides to investors. Compounding enables individuals to earn substantial yields on their mutual fund investments when invested for a prolonged period of time. Compounding helps investors to multiply their returns at an exponential rate. Another advantage of investing in mutual funds through SIP is that investors do not need to time the markets. Often investors incur huge losses while trying to time the market. However, what they miss out is that it’s not as easy to catch the markets at their lows. Markets are always quite unpredictable and it’s next to impossible for an individual with not much experience to time the markets successfully. However, one must not invest in the markets based on the changing market prices, rather they must invest in mutual funds considering their risk profile, investment horizon, and financial goals in mind.
The ups and downs in the market are an inevitable part of mutual fund investment journey. Hence, rather than timing the markets and aiming to flee from the volatility, an individual must consider investing in mutual funds in a systematic manner through SIP investment. Even if the markets are soaring at all-time highs, it is advised to continue with your mutual fund investments and stay invested in the markets as the markets are bound to go up and so are the yields on your investments. While in the short run, the markets may seem to appear to be soaring high, however, it is grim to accurately predict the exact duration the rally is expected to last. Hence, it might not be a wise decision to sit on a huge pile of cash or redeem your mutual fund investments. Have faith in your investments and stay invested in the markets even during the market highs or lows. If you wish to assess the future value of your mutual fund investments, you might consider using an SIP calculator that can help you with the same. Happy investing!