A Systematic Investment Plan is probably one of the few investment schemes that encourage the investors to inculcate the habit of investing regularly. It infuses a sense of discipline in the investors when it comes to making systematic investments Plan (SIP) and also gives them the freedom from tracking the market conditions.
What makes the SIPs work best in a volatile market?
The SIPs are considered to be suitable for a volatile market, but have you really considered, what makes it best in such a situation? The following reasons make the SIPs work best in a volatile market:
Reduction in the Average Cost: Regular investment allows the investors to buy more units when the NAV is low and less units when the NAV is high. This continuous procedure leads to the rupee cost averaging and also allows them to achieve the buy low sell high goal. Even in a volatile market, the features of SIPs allow the investors to draw this benefit of reducing the total average cost of the units.
The power of compounding: An asset generates revenue through its ability to compound, which are further reinvested to increase the returns. The continuous reinvestment of the income generated enables the investors to increase their principal sum through each investment. The compounding interest earned through regular investment benefits the investor even in a volatile market.
Au revoir to timing the market: Even the best of the investors tends to stagger at the deciding upon the best time to invest in a market. The discipline of regular investments in SIPs, offer the investors the freedom from continuously monitoring and timing the market conditions. The ability to balance the investment portfolio during a volatile market also reduces the importance of timing the market.
No strain on daily finances: An investor can invest a very small amount in a SIP; this feature not only facilitates investments but also doesn’t strain the daily finances of the investor. The SIPs are deemed perfect for the small-scale investors, who can benefit from this simple investment feature and build a strong corpus over the years even in a volatile market situation. The SIPs work best for the investors who use it as a long-term financial strategy, it helps them save away a meagre portion of their income that accumulates over time and helps them tide over financial crisis with ease.
Accomplishing long-term goals: Since SIPs help the investors to build a corpus for their future; it helps them to accomplish their long-term financial goals. Though short-term investments and quick earning which may seem tempting, persistent investments over a long time will enable the investors to fulfil their major financial goals. It will work even at a time when the short-term schemes struggle to cope with the volatile market.
Though SIPs work best in a volatile market, there are certain investment tricks that can be used to further maximise the returns and lessen the burden of risk in a chaotic market. Contact our financial experts to find out more about such tricks.