How will you invest in stocks, especially when the market becomes volatile? The best way to do it in such cases is to invest your money through SIP. SIPs are considered the best way to make money in a volatile market. The basic rationale is that you simply buy capital low and sell when it rises. But it will be possible that you always get it right, there is no chance that sometimes you are wrong. But these flaws are the only things that turn a normal investor into a trader.
The market has rallied many times, and when the market rattles investors, they are in a hurry to get their money out of the market, but when the market goes up, these are the same investors pulling their hair out, who should have invested in the market. choppy market times rather than withdrawing your investments from the market.
When thinking of investing in the volatile market, SIPs are the best option.
SIP stands for Systematic Investment Planning, which is an investment process that helps you invest a predetermined amount in mutual funds (equity, debt, or hybrid funds) on predetermined dates. SIPs tend to be more rewarding when done in equity mutual funds, because equity, by its very nature, is the most volatile asset class. Therefore, a SIP in a stock fund provides the best opportunity to average one’s costs over market highs and lows.
Taking a SIP instead of a lump sum investment offers investors the following advantages:
1. Self-control
Most investors find it hard to resist the urge to try and time the markets. We all have the same weakness when it comes to trying to catch a low market or a high market. But the task of doing this correctly every time is incredibly difficult even for expert investors. An SIP helps resist this urge by automatically making investments every month. Plus, it helps ensure you invest regularly and reduces the chances of impulsive spending.
2. Averaging Your Costs
If market lows gave you a tough time, then SIPs would have helped. By buying at various market levels, your investments would have been made at different NAV’s of the mutual fund, thus averaging your costs.
3. SIPs perform better in a down market – they make sure you buy when the markets are falling, i.e. buy low! Only in markets that are continuously falling, a SIP would not be useful. However, in the long term, the markets rise. That’s when your SIPs would make a profit. While systematically investing in mutual funds, if you choose around 3-5 funds depending on your asset allocation and risk appetite, you can choose different SIP dates for your investments. This means that you are investing in 3 or 5 different trading days per month, instead of 1. So with 5 different schemes, you can invest in 60 days in a year. This would help you average your costs over 60 market days instead of 12 market days. Therefore, the more market days you trade, the more you will average your costs and the higher your chances of getting better returns.
Light in the wallet.
Many times it is not possible to invest a substantial amount all at once. Investing through a SIP helps to invest even a small amount at regular intervals.
Just remember to invest as much as is comfortably possible. Even a small increase in your SIP can have a great effect on your long-term wealth.