Ride over market volatility through SIP
One of the major encounters that investors' are facing these days is wide fluctuations in the stock market. And the first reaction to this volatility is panic. There can be various events that can lead to such swings − pandemics, changes in government policies, geopolitical tensions, unfavorable economic data, etc.
Being an investor, we can’t control how these forces may impact the market, but we can take steps to mitigate their impact on your investment portfolio. One of the best ways to manage the impact of market volatility on your portfolio is to stick to the financial goals and create a well-diversified investment plan as per the risk appetite.
Our advice to investors remains to look at the equity market for the long term goals and not get swayed by the euphoria or short term blips. We strongly believe that Systematic Investment Plan (SIP) remains to be one of the wisest ways to invest in the equity markets to average out the cost of investing over multiple market cycles.
Every smart investor knows that Systematic Investment Plans can be one of the smartest tools to navigate market volatility. SIP method uses the Rupee-Cost Averaging judiciously to smooth out the ups and downs over time
By staying invested through market lows, we can buy more units through monthly investments in an SIP. And as markets rise, it can buy fewer units. In the long run, this method acts as a shock-absorber for the investment. These intermittent corrections are crucial for the SIP to deliver healthy returns as one accumulates more units in weak market phases, its benefits become apparent when markets start to move up again. Investors who persist with ongoing commitments benefit in the long run.
Continuing the SIP through volatile phases help eliminate the urge to time the market for better returns. Infact, most investors trying to jump in at the right time have ended up missing the best days of the market, thereby, affecting their return potential. By staying invested, you also continue the good habit of saving a little each month.
Retail investors, who either do not have the expertise to evaluate the equity markets or don’t have the time to actively manage their investments, can easily use SIPs as an investment tool to invest in equity mutual funds. This would not just help them to save regularly, but also use the approach of rupee cost averaging to efficiently create potential wealth for the investor over a longer period of time. This disciplined approach of investing can help an investor to improve their chances of better returns and build assets over time.
Consulting your investment advisor is the best way to take any investment decisions before investing to understand all legal, financial and taxation implications.
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