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14
Nov

Invest in SIPs for the long haul

Markets have been quite volatile during the current year. Even while the investors witnessed the Sensex touching the all-time highs, it gave up almost all its gains for the year within a span of 30-40 days. The investors that have recently joined the wagon for equity markets must be a worried lot, as many of their portfolios would be into losses. However, this is certainly not a time when you must consider redeeming your existing mutual fund investments or even stopping your existing Systematic Investment Plans (SIPs).

SIPs, by their very nature, are an investing strategy that allows you to make regular investments into the market, irrespective of the current markets trends. It doesn’t matter whether the markets are up or down on the specified date of investment. Thus, it helps you eliminate emotions from your investing journey.

Continuously having a red portfolio may be encouraging you to stop further investing in the markets. This might be the most logical solution for you to protect your capital and prevent further losses. However, this might be the biggest mistake you may make, having the potential to jeopardize your financial goals. SIPs pass on the benefit of rupee cost averaging to you, as the cost of investing gets averaged over a period of time. Stopping your existing SIPs will restrict the benefit of the current market falls, as you don’t make fresh investments at lower valuations and hence, don’t get higher units for the same investment you made last month.

Equity markets are inherently volatile in nature in the short-run but as we stretch our investment horizon to a longer period, the short-term volatility gets smoothened out. Just to put that into perspective, while the markets may have remained choppy for few months many times in the journey of BSE Sensex, it has given great returns to the investors that continued to stay invested with it. Over the last 39 years, ever since BSE Sensex was created, Rs. 1 lakh invested would have turned into Rs. 3.48 crores today.

Even in the content of mutual funds, a long term investment horizon has been helpful to the investors, as it helps mitigate the downside risk. As a matter of fact, none of the mutual fund categories gave negative returns to the investors over the 5-year and 10-year time period, when we glance through the average returns of such mutual fund categories. Source: ValueResearchOnline

Let us scan through the average returns of Equity: Large Cap Mutual Funds over different time horizons.

Equity Large Cap Mutual funds have given -8% annualized returns to the investors over the last three months, which may be worrisome for a short-term investor. On the other hand, for a long-term investor, this is just another opportunity to invest in equity markets at lower valuations. Over the last 5 years, such funds gave 12% annualized returns to the investors, which also considers the negative returns over the past three months.

As such, the investors must consider such times of correction as a blessing in disguise, the markets are at more reasonable valuations presently than the valuations a couple of months back. From a P/E of around 61 for NIFTY Midcap 100 in July 2018, the markets have cooled off to the P/E of 44 in October 2018. A SIP in the index on 1st of every month this year would have averaged your cost to a P/E of around 52. This is how SIPs allow you to eliminate emotional bias for your investing plans, and stopping you SIP midway may not allow you to lower your cost further, when the markets are down.

While India’s growth story continues to be promising, your portfolio just needs your conviction to continue investing in the equity markets with regular investments. So, don’t let this volatility into the markets impact your financial plans and instead, just SIP your financial goals and continue to stay boarded on the journey to achieve your financial goals.  Edelweiss Partners offers you an online mutual fund platform that offers a comprehensive bouquet of Mutual Fund schemes across categories and fund houses. It also provides access to the online transaction platform, research reports, expert analysis, fund recommendations, and financial planning tools.

 

 

Ramesh
This is very nice article for SIP. Keep Posting..
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