Dont Undermine The Power Of Systematic Investing

Over the last few years, SIP has emerged as a preferred way of investing for mutual fund investors. This disciplined approach to investing has found its rightful place mainly due to the untiring efforts put in by all the stakeholders of mutual fund industry over the years and the realisation among the investing public that this strategy works very well partly because of “averaging” and partly because, in the long run, markets move upwards, despite bouts of volatility over different time periods.




Hemant Rustagi 
Chief Executive Officer, Wiseinvest Advisors 

The ever-increasing number of SIPs being enrolled every month is a testimony to the growing popularity of this disciplined approach to investing. The industry mobilised Rs 8023 crore through this route in December 2018. The growth, despite poor or negative returns, even on investments made through SIP over the last 18-24 months is remarkable. It highlights investors’ understanding of the need to not only follow a disciplined investment approach, but also continue with it through the volatile periods. 

However, considering that the stock market is likely to remain volatile over the next 6-12 months due to the forthcoming general elections and the possibility of a weak coalition government at the Centre, any further weakness in the market may begin to test the patience of investors. Investors will do well to remember that although events like elections do impact the markets in the short term, fundamentals prevail in the long-term and allow investors to earn healthy returns.

While investors who began investing through SIP over the last few years have already experienced it, those looking to start the process of systematic investment may find it challenging. They will do well to remember that SIP is an ideal way to build up capital over a period of time. However, the key is to remain disciplined, irrespective of the state of the market. Simply put, when you opt for regular investing, you abandon any strategy that might control timing of your investments.

It is a proven fact that equities require commitment of time and hence you must have the patience to wait out the turbulent times. Simply put, the key to achieve investment success is to adopt a long-term approach. Many investors make the mistake of investing through SIP in equity or equity-oriented funds without having a clear time horizon. That not only makes it difficult for them to decide their asset allocation, but also expose them to the risk of making haphazard decisions during volatile periods.

Remember, when you invest through SIP for four years, your average holding period would be two years, which is not adequate for an asset class like equity. The ideal period for investing in equity funds through SIP would be 8-10 years or more. In fact, aligning your investments through SIP to your goals is the right way to remain committed to your defined time horizon and avoid making haphazard decisions. 

Also keep an eye on the performance of the funds in your portfolio. Remember, while regular investing reduces the impact of volatility on your portfolio, it does not eliminate all the attendant risks completely. One of the risks that you may have to encounter is poor performance of some of the funds in your portfolio. However, it is important to put performance in a proper perspective. Short-term underperformance of a fund in line with that of the market should not be a cause for worry. Therefore, you must give adequate time to the fund manager to perform well. At the same time, do not hesitate in replacing a poorly performing fund with a fund with better prospects. Remember, long-term investing requires your commitment to equity as an asset class and not to the funds in the portfolio.