Mutual Fund investment: SIP route can help you deal with volatility
The last few months have been quite challenging for the Indian stock markets. The liquidity crisis in the NBFC (non-banking financial companies) sector, the economic slump, output contraction in 8 core industries, and the subdued export growth are some of the factors that havesimply aggravated the situation.
All these factors have cumulatively added to the increased volatility in the share market, which is quite evident from the noteworthy jump in the average volatility index or VIX. Also termed as the fear index, the VIX jumped 30% between August 2018-2019, relative to -4% between August2017-2018.
Although regulatory bodies like the RBI (Reserve Bank of India) and the government have made an effort to boost investor sentiment by reducing corporate tax and repo rates, current volatility will move at its own pace.
Read on to know how you can sail smoothly amidst high tides with investment through SIP or Systematic Investment Plan.
Individuals prefer SIP investments as they helpminimise risks and promote disciplined financial planning. Italso encourages regular investing that aids in wealth accumulation and proves to be very useful for risk-averse investors. By investing in SIP mutual funds, individuals can efficiently operate in both falling and rising markets and claim the benefits of both.
SIPsare generally used by individuals who invest in mutual funds who are looking for long-term wealth creation but can divert only so much of money towards this goal. Since you invest periodically, you catch the markets at different prices. This way, you end up purchasing more units when the markets are low and vice versa. This averages out the cost of buying units and is widely known as rupee cost averaging.
Mutual fund experts believe that volatility in mutual funds, especially in the equity mutual fund sector, will continue to rise unless corporate earnings improve substantially at the macro level.Under such grave situations, investors can take advantage of the SIP route to invest small but considerate amounts in stocks regularly, thereby taking advantage of the volatile and unpredictable stock price movements.
Mutual fund investments in SIP are the only solution to overcomethe unstable and volatile marketsas it’s almost impossible to time the latter. What’s more, SIP investments are not hard on your pockets unlike lumpsum.
The power of compounding also works in favour of SIP mutual fundsas they are long-term investment avenues. The longer your money is invested, the more benefits you can reap from it. This is because your investments earn returns, which further earn returns on the reinvested returns.
As a thumb rule, always remember, the earlier you invest in SIP, the higher the wealth creation. Once you have determined to take the SIP route for your mutual fund investment, the next part – how to invest in SIP – is not challenging at all. You can use a SIP Calculator to calculate the returns you would earn on your SIP investments and also tells you how much you would need to invest every month to earn a target corpus.
SIPs can be one of the best sources of wealth creation if you effectively opt for them. So start investing today. Happy Investing!
