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Take SIP route of Investment during this volatile stock market

 

THE usefulness of a systematic investment plan (SIP) is clearly visible at regular time intervals. Often, it is during tough times, when one is able to appreciate the benefits that an SIP provides and how this can be effectively utilised by the investor to build a strong financial position.

Here is a look at some of the conditions when this route would be useful for making investments.

Large amount to invest: One situation that the individual has to encounter is where they have a large amount to invest but they actually are not very confident about investing the amount. This happens due to the fact the investor wants to ensure that there is a low initial risk present on their investment. There is a large risk in making a one-time investment, as a sudden change in the situation from the time the amount is invested, could result in a large loss that is unaffordable.

So, if a person has Rs 25 lakh to invest and they want to invest into equities, then they would not like to come to a situation, where, in a week, after they invested the amount, there is a loss of 10 per cent and they find that they have lost a sum of Rs 2.5 lakh. Instead, they would want to ensure that the amount is invested in such a manner that this kind of initial risk is minimised, which is where the usefulness of the SIP comes in.

Regular investment: The other thing that a lot of people want to ensure is that there is a regular investment over a period of time so that they are able to ensure that the financial planning process is successfully carried on.

When the regular investment is required, then they would want that there is some way by which they need not make calculations every month and direct the investment in a specific manner.

This will mean following the SIP process, where, for example, they are able to, say, that out of the savings of Rs 15,000 per month, Rs 8,000 a month will be invested into two equity-oriented funds. This will ensure that there is ease of completion of process, without having to undertake any tension once they have set up the entire investment structure.

Uncertainty about equity markets: The manner in which the individual selects the investments for the SIP is important, but there is also a situation where the individual faces an uncertain equity market. There will be occasions when the individual will not be clear about the manner in which the equity markets will move, and hence, they will be confused whether they should complete their investments immediately or wait for a better opportunity to emerge. In such a situation, when the manner of the movement of the markets is not clear, the individual would be better off in selecting an SIP route for the investment.

This could mean that there are a lot of times when the SIP would be the best route that would be present for the investment. The individual can save a lot of trouble by just going in for the SIP and leaving out the investment worries to the fund manager, rather than trying to understand very short-term movements in the equity markets and then finding out that they have been wrong in these predictions. It is nearly impossible to time the markets, and hence, investors would realise that they are better off using the simple SIP route and save a lot of worries.
 
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