Indian Mutual Funds have around ₹5.48 crore SIP accounts as of May 2022. The total amount collected during the same month is ₹12,286 crore. A systematic investment plan is a convenient method of investing in mutual funds. It does not involve the hassle of depositing a check each time or manually monitoring the amount debited from the bank. SIP is a preferred route for investors due to several other reasons like Rupee Cost Averaging, higher returns, power of compounding and low-cost options. You can simply use a SIP return calculator to know the total value of the investment at the end of the chosen tenure.
SIP also helps reduce the market timing risk.But it is necessary to ‘stay’ invested rather than pulling away from the money during volatilities. This can put all your efforts of savings into vain. It is a common misconception that an overpriced market may fetch fewer returns in future. But financial experts recommend being consistent since equity investment bears fruits only when they are made regularly year after year. Below are a few other reasonsto not lose faith.
Defeats the Purpose of Rupee Cost Averaging
The rupee-cost feature of SIP will work best supporting the power of compounding in times of heightened volatility. This is because the market tends to work both ways, downside and upside, which ultimately averages out the cost of investment through regular inputs. You can buy less when the market is expensive and more when the market is cheap. By terminating the SIP, you may lose out on the opportunity of buying low-cost. Use a mutual fund SIP calculator to determine the returns before parking the fund in the investment tool.
Market Volatility is Short Term
The average length of a bear market is 289 days which is about 9.6 months. This is shorter than the bull market length which is around 991 days or 2.7 years. So, avoid looking at the immediate under-performance and keep the bigger picture in mind. Try not to postpone or cancel the regular investment dose. You may be contemplating discontinuing when the prices are at an all-time high. But, chances are, they could be lower when compared to future costs. So, spare yourself the hassle of decision-making during hard times and simply stick to the investment without tweaking the strategies. Use a lump sum SIP calculator to beat the impacts of volatility and save your wealth from erosion.
Helps Counter Inflation
A timeline of more than 15-20 years helps generate inflation-beating returns. This will not be possible if you stop investing during trading price variations. So, it is a good idea to allow adding to the power of compounding. Avoid losing faith and continue depositing the desired amount to achieve financial goals better in the long run.
Few of the worst-performing funds have often delivered positive returns. This is because the investors did not exit when the indices were at a higher level. So, try not to close the SIP when the market inched upward with heavy price fluctuations. SIPs are usually a good choice if you have a fair risk appetite, a time horizon of minimum of 5 years and more and the goal is capital appreciation.