The Sensex has fallen by over 2500 points. The stock market wealth has come down by more than Rs 11 lakh crores since the beginning of 2011. On an average, Rs 100 crores is eroded every single minute of trade so far this year. Investor sentiment is down because of the continuous fall in the stock markets. The bear run at the stock markets is costing investors dearly.
So what should you do?
One option is go for a systematic investment plan (SIP). A SIP inculcates a disciplined approach to making regular investments in equity, and balanced and debt funds. Each transaction will fetch you additional units that will be added to your investment account, helping you build your investment at regular intervals.
There is no need to time the markets as you invest at pre-determined intervals.
This spares you from investing a lump sum at peak prices. Also, you benefit from an investment principle called 'rupee cost averaging'. Since you invest fixed sums at regular intervals, you pick up more units when the prices are low and fewer units when the prices are high. This brings down the average cost of your units.
SIP renders to you the power of compounding, especially if you begin your SIP early in life. Also, SIPs inculcate the savings habit in investors. On a regular basis, you put aside affordable sums of money. Over the long run, you could amass considerable wealth.
SIP is a hassle-free mode of investment since you can issue standing instructions for the regular transfers of money into your SIPs. Moreover, a SIP serves as a good financial tool to counter inflation. They help meet large expenses like marriages, education or a house purchase. With SIP you don't need to invest a huge sum of money and can start with as little as Rs 500.
SIPs reduce risk. In highly volatile markets, SIP helps you average out your cost by generating superior returns in the long run. It reduces the risk associated with lump sum investments. By buying into various NAV levels, your rupee costs get averaged. It goes without saying that the average NAVs at which you purchase may only go up in a rallying market, while in a declining phase, your average cost would come down. This is a prime reason why investors should keep their SIP going, in both the bull and bear phases of the market. This way they can optimise their returns.
Market fluctuations affect cost of investments. SIP gives the investor the option to invest at various points in time which helps average out the cost of acquisition of units. A SIP enables you to invest a preset amount in the scheme of your choice at the applicable NAV of each transaction date. Most funds offer SIP in most of their schemes. You can just identify the amount and scheme you wish to invest in and then choose from options like auto debit and ECS. The amount will automatically get debited on a date of your choice. You can also give monthly/quarterly postdated cheques for the amount you wish to invest.
