INSUBCONTINENT EXCLUSIVE:
Financial planning to pursue major life-goals has become a key priority of investors in India
With rising awareness levels, retail investors have started exploring options like equities and mutual funds to ensure returns higher than
those offered by traditional alternatives such as bank fixed deposits.
This change in approach towards investment is evident from the
confidence of over 6 crore retail investors, who are estimated to be invested in equities, either through direct stock investment or through
While investment in stocks is still at a nascent stage, mutual fund investments have seen a huge surge in recent years.
According to Amfi
data, equity-oriented mutual fund schemes witnessed a total inflow of over Rs 1.7 lakh crore in 2017-18
Systematic investment plans (SIPs), regarded as the best route to accumulate wealth due to compounding, also witnessed a growth of 70 lakh,
taking the total of SIP accounts to 2.05 crore in FY18.
Though it is heartening to see these figures, current market volatility may act as a
The turbulence that the market has been experiencing has started playing with investor psyche
Many are contemplating to stop SIPs to contain erosion in the value of their investments
Would that be the right strategy The answer is NO
They tend to make irrational and illogical decisions with their investments, especially when there are frequent upward or downward movements
It is important to understand that market performance is influenced by a number of variable factors, which in many instances are beyond the
comprehension of the common investor.
Change in market conditions may not lead to any change in the fundamentals of a company that mutual
Without conducting due diligence, following the herd is not a prudent decision
It is advisable to exercise patience instead of panicking and continue with SIPs.
It is an established fact that investments held for long
periods tend to exhibit lower volatility than those held for shorter periods
The longer you invest, the more likely you will be able to weather lows in the market.
Rupee-cost averaging worksMarket volatility is a
friend if you are investing in mutual funds via the SIP route
Just because the market is moving in one direction does not mean it will not change direction sooner or later
Investors can actually capitalise on market movement by buying more units when the market is down and selling few units when the market is
high for the same amount invested.
This strategy not only reduces the average cost of investing but also helps to maximize returns
Let us understand this with the help of below scenario:
It clearly shows that an investor exiting the market at the end of 3 months incurs a
higher average cost as compared to investing for 5 months
Thus, over 5-10 years, an SIP investor would build a robust portfolio at various price points, helping him earn better returns without going
the investors participate in the growth story by spreading his investments evenly over the year at the frequency of his choice and amount as
low as Rs 500 per month
As professional fund managers exercise this market intelligence on behalf of mutual fund investors, the investors do
not have to worry about timing the market
Hence, it makes sense to continue your SIPs in volatile markets
In fact, investing some lump sum amount during down times could give an extra edge to your long-term wealth creation.
Financial planning is
about chasing goals, not marketsThe first step to make wise investment decisions is to set goals
The goal setting exercise helps to select the right instruments and allocate adequate resources for achieving the targets
However, it has been observed that market volatility often make investor to lose the sight of their goals.
The desire to play the market
often leads to imprudent financial decisions
Even in case of mutual fund investments, when the markets are doing well, Investors buy more units to have a share of the pie and offload
the units when the markets are going down.
This tendency derails the investors from their financial path
It is important to keep your investment goals at the core and stick to the plan without getting swayed by the market noise
It is only by keeping your eye on the prize that you can avoid all the diversions and work single-mindedly to make all your financial dreams
The disciplined approach towards investment inculcated by SIPs is imperative to achieve financial goals
In fact, the decision to start an SIP itself puts an investor on the path to financial prosperity
The key to make this approach towards investment work for you is to stay focused, avoid unnecessary churning of your portfolio and sticking
