SIPs: An antidote to the market volatility

SIPs: An antidote to the market volatility

Evolution happens in steps. From the dominance of closed-end plans to the following of open-end ones; from the availability of only regular plans to the development of direct plans; from an era of high percentages to low percentages; from the dominance of active funds to the emergence of passive ones - the mutual fund season in India has evolved over the years. The idea of SIPs has also caught off. Many investors today recognize that SIPs are a more reliable way to invest in equities as compared to lump sums amount.

SIPs aren't mysterious; they are just a methodical way to invest. By investing systematically, ideally monthly, you become disciplined about financing. More than discipline, SIPs help equity investors operate market volatility. Volatility is an indispensable part of the market. It can't be done away with. Hence, the need is for a device that can counter it. That device is SIPs. When you invest regularly over the long term, you get to advance both at market highs and lows. When you loan at a market high, your SIP will fetch you fewer units. When you buy at a market low, your SIP will fetch you more units. This equates to your overall investment cost.

Markets are unpredictable. Nobody can tell with certainty when they will rise or fall. If you wait for the appropriate time to invest in the market, it may never arrive. A rally may go on for years and a slowdown can continue for months. SIPs help you naturally get rid of the predicament of figuring out when to invest. They also help you overcome your inherent biases that are counterproductive to your financing outcome. For instance, many investors stop their SIPs when the markets start to fall, fearing that they will lose money. Also, many investors start their SIPs in a rallying market because they don't want to miss the bull rush.

Keep it manageable

For SIPs to work in your favor, you must keep them manageable. Today there are many variants of SIPs available. For example, one type of SIP lets you keep your SIP amount variable. While it's a comfortable option to have, it could compromise your discipline. This decision opens a window for the investor to direct money to some frivolous investment at the cost of accumulating money for the long term.

Yet another modification of SIP allows you to invest more or less depending upon a market level. If you observe the market, you can invest more when the market is down and spend less when it's rallying. This idea appears original at the outset but has its complications. For example, it can result in a diminished corpus if the market keeps recovering over many years. Since India is a developing high-growth marketplace, it's natural for the stock market to show widespread rallies and shorter periods of slump.

SIPs are best kept uncomplicated. Don't innovate with them to improve your returns. Chances are you will get just the contrary result: diminished returns with operational troubles. Go for the monthly choice. It's suitable for the most maximum of us. Research shows that the SIP meter has no meaningful impact on your returns. The backbone of SIPs lies in their simplicity.