Volatile funds are known to be a source of good returns but they are prone to even the slightest movement in the market. While the funds earn great returns in a booming market, the same can incur a severe loss in a low market phase if invested in the wrong such. A fund that is prone to market changes demands a good investment tool like SIP to facilitate more earnings.
Reasons why SIP should be done on volatile funds for better averaging
Here are somereasons why SIP should be done on volatile funds for better averaging and investors can benefit from it:
- Reduce cost: Cost averaging ensures maximisation of returns and minimises the impact of market volatility. When the market is volatile, the funds those are prone to volatility face challenges in the market. At such a time, the price per unit of such funds become considerably and regular SIP investors take full advantage of the situation by purchasing more number of units at low prices. When the market situation improves, the prices of the same units soar high; this time the SIP investors sell less number of units at a higher price and earn a greater profit on each unit. This helps them over time to reduce the average cost of each unit by a great difference. Since volatile funds are prone to market fluctuations, in a good market they earn great returns while in a bad market their value depreciates a lot.
- Investment discipline: Investing in volatile funds is risky and full of uncertainties but the SIP investors are under lesser stress when it comes to putting money in such funds.The regular activitiesof SIP investments develop its habit in investors and help them become more confident and sure about their investments in both volatile funds and volatile market. The discipline encourages investors further when their regular investment endeavour bears successful cost averaging outcomes.
- Absorbing market volatility: Volatile funds generate better earnings than most other funds in the investment market but they are also closely associated with market ups and downs. The high returns from volatile funds and profits earned through it,courtesy cost averaging help SIP investors ride to out the blows of market volatility in a low market phase.
- Wealth Accumulation: Volatile funds are known to bring better returns than most other funds and therefore continuous investment in such funds over a stretch of time will help investors to accumulate wealth faster and easier even with a little investment.This process allows individuals the feature of compounding and cost averaging helps investors accumulate wealth better in volatile funds.
Volatile funds tend to be riskier than most funds, only a systematic and disciplined approach towards investments can help investors maximise its benefits and minimise its risks. Contact our financial advisors and fund managers to build a solid plan that will help you channel your investment in volatile funds through SIP and will help you derive maximum benefits in terms of its features like cost averaging.Follow Us: