SIPs in the bear market

The SIP investors shouldn’t be deterred by the irregular movements of the equity marketduring the bear market phase. The prime philosophy that underlines an investment in a SIP is continuity. Investors should continue their investments in SIPs, regardless of the market condition to avail maximum benefits in the long run.

The relationship between SIPs and bear market:

Though bear markets are labelled as stressful periods they are in fact deemed to bring terrific investment opportunities.

The following reasons highlight why the bear market is a good friend for SIP investors:

  • Rupee cost averaging: Rupee cost averaging is a feature that substantially brings down the average cost of purchase over the time and it can only function effectively when the investor makes active investments even in a fluctuating market. If SIP investors continue to invest in a bear market, they will be able to distribute the risk factor over the years and will be able to achieve the goal of buying low during the bear market and selling high during the rising market.
  • Power of compounding: SIPs offer the investors with the benefit of reinvesting the sum they receive from their investment and therefore provide them with the benefit of earning more money through its compounding feature. Investors can further use the reinvestment feature in their favour during the bear market and earn higher returns in the long run.
  • Recovery: The fact that the bear market recovers quickly represents the phase as a great time for making investments and accumulating units at a lower cost. The long-term aspect of investing in SIPs tends to minimise the effect of market volatilities and negative returns over the years and keeps your long-term financial goals unharmed.
  • The market timing: SIPs offer the investors freedom from market timing; even when an investor has made a risky investment in a dangerousmarket, they can recover the loss and end up earning good returns by staying invested over the years.

Tips to invest in a bear market:

  • It is only during the chaotic market conditions when the investors are able to gauge the quality of their investment portfolio. To cope with the bear market, investors should focus more on quality investments.
  • Thorough knowledge about qualitative investment helps the investors to identify stocks with great growth potential and scope of attractive valuation. Inculcate a sense of expertise and investment knowledge to be able to reap maximum benefits in a bear market.
  • Adopt a disciplined approach towards investment so that you can tide over the momentary fluctuations in the market over the course of investment through a steady flow of returns.

When compared to the length of bull markets, bear markets are usually shorter and therefore tend to be more volatile than the former. Investors can use it in their favour by increasing their allocation of assets through different investment options. The bull and the bear markets are integral and inevitable part of the economic cycles; consult our professional financial advisors to gain insights and to make the most of a bear market through an investment in SIPs.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not an indicator of future returns. Wealth Redefine is a AMFI registered Mutual Fund distributor – ARN - 85350

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