Investing in a Volatile Market
How will you invest in equity, especially when the market becomes volatile? The only best way to go in such cases is by investing your money through SIP. SIPs are considered to be the best way to earn money, outside the volatile market. The basic fundamental is that you simply buy equity at a low price and sell when it rises. But will it be possible to always do it, there is no chance of sometimes being wrong. But these failures are the only things that turn a normal investor into a trader.
The market churns many times and when the market churns investors rush to pull their money out of the market but when the market goes up it’s the same investors pulling their hair out who should have invested sooner during the churning time than withdrawing their investments from the market.
Thinking of investing in a volatile market, SIPs are the best option.
SIP stands for Systematic Investment Planning, which is an investment process that helps you invest a predetermined amount in mutual funds (equity, debt or hybrid funds) on predetermined dates. SIPs tend to be most rewarding when done in equity mutual funds as equity is inherently the most volatile asset class. Hence, an SIP in an equity fund gives the greatest opportunity to average out one’s costs against the highs and lows of the market.
Taking a SIP instead of a lump sum investment offers investors the following benefits:
1. Self-control
Most investors find it hard to resist the urge to try to time the markets. We all have the same weakness when it comes to trying to catch a market low or high. But the task of getting it right all the time is incredibly difficult even for experienced investors. SIP helps resist this urge by automatically making investments every month. It also helps ensure that you invest regularly and reduces the chances of impulsive spending.
2. Averaging your expenses
If market downturns have hit you hard, then SIPs will come in handy. By buying at different market levels, your investments would be made at different NAVs of the mutual fund, hence averaging out your costs.
3. SIPs work best in a falling market – ensure that you buy when markets fall ie. you buy low! Only in continuously falling markets would SIP not be useful. However, in the long term, markets are rising. Then your SIPs will reap profits. While investing systematically in mutual funds, if you choose around 3 – 5 funds depending on your asset allocation and risk appetite, you can choose different SIP dates for your investments. This means you invest on 3 or 5 different market days per month instead of 1. So with 5 different schemes you can invest on 60 days in a year. This will help you average your costs over 60 market days instead of 12 market days. Thus, the more market days you invest, the more you average out your costs and the greater the chances of better returns.
Light on the wallet.
Many times it is not possible to invest a significant amount in one shot. Investing through SIP helps to invest even a small amount at regular intervals.
Just remember to invest as much as is comfortable. Even a small increase in your SIP can have an excellent effect on your wealth in the long run.
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