Do You Have A ‘Sip’ Strategy?
Rajeev Murarka Pravin Murarka
Owner & Founders, Poonam Securities
A systematic investment plan (SIP) is the most effective investing strategy, says Rajeev Murarka and Pravin Murarka, Owners and Founders of Poonam Securities
When it comes to investing, one of the factors which cloud an individual’s decision making skill is one’s own emotional bias. As a means to circumvent this, financial experts advocate the use of Systematic Investment Plan (SIP). What an SIP does is that it regulates one’s investment into mutual funds without the individual taking a conscious move to invest. SIP is just a common sense way to invest. But it is a habit that leaves a positive impact from the day you start. SIP helps you automatically prepare for life’s commitments such as home purchase, marriage, and education for children, in a planned manner. Well begun is half the job done. Target a goal, and begin a new SIP.
Benefits of SIP
The biggest benefit of using this mechanism to invest in mutual funds is that it provides you complete freedom and convenience to invest as per your own comfort and at the same time helps you inculcate financial discipline. The next major benefit you get through an SIP is that you do not need to worry about the vagaries of the financial markets. The markets, especially equity markets, can be quite volatile. While this might appear risky sometimes, over a period of time, this ensures that you have invested at low as well as high points of the market.
As a result, you do not miss out any market rally, as you are never worried about timing the market. This also means that you get the ‘rupee-cost averaging’ benefit. This means you buy the underlying asset at different price points, thereby gaining when the price is low. The power of compounding is also a hallmark of mutual fund investing through SIPs. In simple terms, this means that the return that you have already earned on an investment, in turn acts as an investment itself, thereby increasing the final return.
Some people make a very costly mistake when they don’t continue with their SIP investments in a market downturn and sell their accumulations. This is the mistake of ‘buying high’ and ‘selling low.’ When it comes to making good with SIPs, see your SIPs through a complete down cycle no matter how long it lasts; it is the only way to succeed with your investments in the long run.
Stay Invested Across Market Cycles
Time in the market is more important than timing the market. For those investors who worry if they have invested at a market top, remember this, if you are in a long haul, it doesn’t matter. It only matter if you have come with a 1-2 year timeframe and for this duration there is always a debt fund one can consider. A look back into the past will show you that stock markets have recovered from all major crashes. As SIPs help you invest with regularity, you can buy the dips when markets are tumbling. Bear markets are not easy to deal with, but they great times to accumulate stocks.
The next important point is related to the chances of making a negative return. For a retail investor, the biggest put-off when reviewing one’s portfolio is looking at negative returns. Even though it may be temporary in nature, it is the investments that are in negative that tends to capture our collective attention immediately. This is where time spent in the market becomes important. To sum up, staying invested through the negative times in the stock market is bound to yield positive investment experience over the long run. Then again investments are made keeping in view a financial goal; so investors need not clampdown during market corrections or volatile times. Instead, if possible under the guidance of a financial expert an investor should look forward to such opportunities to increase the quantum of investors during such phases such that one gets to accumulate more units.
SIPs have always been an important wealth-creation tool. With the changing needs of investors, the mutual fund industry has indeed evolved to offer investors a good investment experience through SIPs .Don’t ruin an SIP strategy by cashing out. Do the opposite, however, and increase SIP allocations, all the while exercising patience till the next upswing. Time will prove it as the most effective investing strategy.
The writer is a Owner & Founders, Poonam Securities Email: email@example.com