Due to the ongoing decline in equity markets, most investors are losing out on SIPs during the last three years. This is why many investors are considering whether they should continue to SIP in times of the current recession. Many investors thinking of starting a new SIP are probably postponing the idea for some time now due to a feeling of fear. However, one of the basic basis of investing through SIP is to keep investing irrespective of the market. In the current market conditions, investing through SIP can be beneficial in the future. Let us know why now is the right time to invest in mutual funds through SIP.
5 reasons for introducing SIP in Equity Funds Investments in the current market situation
Macro-Economic Conditions and Geo Political Trends
An investor needs to understand macro-economic conditions, fundamental analysis, technical analysis, and geopolitical trends to understand what time to invest, this is not an easy task for the general investor. However, many investors are more inclined to invest more when the market picks up and to reduce investment when the recession hits. Continuing investment through SIP not only keeps your investment steady but also keeps you in a dilemma as to how much time you should invest and the benefit of buying more units at the same cost during a market downturn. Also found, which reduces your investment on average.
Ensures consistent and disciplined investment
In SIP, investors have to invest a fixed amount on their predetermined date from their savings bank accounts in their chosen MF schemes. This rule of automatically deducting funds for investment ensures that the investment is continuous and the market changes are less likely to affect your investment decision. Consistent investment also helps to create financial discipline as investors avoid unnecessary expenses to meet SIP investment.
Value Cost Averaging of Rupees
When invested by SIP, the amount given for investment at the fixed time remains the same, but the number of units purchased according to the market is small. When the market falls, you can buy more units at the same investment cost and fewer units when the market goes up. In this way the cost of your investment is average. By investing in medium to long term SIP, you can avail more unit purchases at low NAV at the time of market downturn.
Start investing with a small amount
Generally, investments in most equity mutual funds can start from Rs 5000 while additional investments can be made from Rs 1,000. However, through SIP you can start your investment in ELSS with a small amount of Rs 500 and in other mutual funds from Rs 1,000. Thus, to invest in MF through SIP you do not need to deposit a large amount.
Benefit of compounding
Compounding means that the interest earned from your investment is reinvested with your initial investment amount. This helps in getting more benefits over time. Because investing in SIP can be started even with a small amount, you can start it every month by investing in low um also and thus can take advantage of compounding. For example, if you invest a small amount of Rs 1,000 every month for 30 years at an interest rate of 12%, then the end amount will be Rs 35 lakh.
What to invest in equity mutual funds through SIP in the current market situation?
Due to the declining market, good stocks are available at quite attractive prices. Therefore, those who have started their new equity funds investments through SIP should gradually integrate the old with their new SIP. Doing so will help them buy more units at lower NAVs and reduce their average investment costs. By the time the market picks up, they will have a large fund, which will help them meet their economic goals quickly. However, when investing in equities through SIP, investors should avoid using their emergency fund, as doing so may cause you to sell your equity fund at a loss or a higher interest in an economic emergency during a recession. May have to take a loan at rates.
