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The unprecedented coronavirus outbreak has affected almost every industry, including the usually bustling Indian stock market.
Although the markets have seen a significant downtrend in recent weeks, experts still believe it is the right time for investing in equities through a systematic investment plan or SIP from a long-term perspective.
Why Is SIP Investment a Wise Decision Right Now?
Systematic Investment Plans, over the years, have turned out to be the most beneficial option, especially to investors who lack knowledge and resources to start investing on their own.
Investing through SIP brings in a more disciplined approach by allocating a fixed amount regularly to accumulate wealth through the given asset class over the long-term.
The main benefit of investing through a SIP right now is the benefit of rupee cost averaging that you get. What this essentially means, is getting more units when markets fall. With markets falling sharply during the current pandemic, the opportunity has presented itself to buy more units at a lower price and later reward yourself with better returns when the market rises.
As investors, you need to ensure to take advantage of this by continuing or enhancing your SIP investments and benefit from rupee cost averaging. What is critically important here is not to panic and continue with your SIP investments by keeping longer-term investment horizons in mind.
A SIP averages out the purchase or buying price of a mutual fund because it puts money into the fund at different points of time and hence gives different Net Asset Values (NAVs). Several investors have monthly cash flows (salary income, dividends, etc.), which makes a SIP a convenient tool for them.
The best strategy for SIP investment is to rebalance your portfolio on a regular basis. You can do this by:
Buy the assets that have become underweight in the portfolio like equity (through SIPs) due to the sharp correction, and sell the overweight asset. Rebalance the portfolio only to the extent that you have become underweight on equity
If your current asset allocation allows you the flexibility to invest more, waiting for correction isn't recommended. The simple reason is that the sharp correction may be followed by an equally sharp rise too. In such a scenario, waiting for further correction will not give you the benefit of lower prices. And missing out on a high chance of getting your asset allocation right at more moderate prices would be disheartening if you witness a sharp recovery without getting a chance.
If you already have SIPs running, make sure to remain invested in these falls and reap the benefits of your overall costs going down. You can also increase your SIP amount for the next 6-12 months in case you have any lump-sum cash at hand. This way, you will be able to take advantage of these volatile times when markets start to recover gradually.
SIPs stick to the simple formula of periodic investment to avoid distress selling during the inevitable ups and downs (similar to the current pandemic situation) of the stock market. Based on the criteria mentioned above, here we have compiled a list of some of the best performing mutual funds that can be invested through a SIP mode in different categories such as small-cap, large-cap, multi-cap, and equity-linked saving schemes.
The fund has the objective of providing long term capital appreciation to investors by investing primarily in equity and equity-related securities of companies listed on NASDAQ and/or New York Stock Exchange.
This mutual fund aims to generate income and capital appreciation by investing in Indian equities and equity-related securities of mid-cap and large-cap companies.
The fund aims to create both income and long-term capital appreciation by investing in a diversified portfolio of mainly equity and equity-related securities of both small and mid-cap companies.
Mutual fund investors can either continue their existing systematic investment plans or invest in the mentioned funds. The biggest advantage of a SIP is that you do not have to time the market.
It is an excellent way to buy more units when a scheme's net asset value (NAV) is low and fewer units when the NAV is high. When the above two situations are analyzed together, the cost is averaged out, and you reap the benefits of averaging. Also, investors who are willing to invest in direct stocks have the option of investing in stock SIPs, which are offered by leading brokerage houses.
Going by the history of the equity markets, it won't be wrong to say that after every crash or crisis, there is a recovery, and it will hopefully happen this time too. It might take a few months or even a year to find the vaccine for the virus, but the normalcy will return sooner or later. So, think rationally, keep calm, and don't go to extremes by either redeeming all your investments or going overboard with investing. Remember: just like past pandemics, this phase too shall pass.
Witnessing market crashes and highs is an inevitable cycle in any investment journey. To be able to reap benefits when we move to normalcy and markets recover, it is important to remain invested through SIPs. The best thing to do right now is not to focus on the risks but assess if you have time enough for the markets and overall economy to rebound and the power of compounding to work for you.