Equity or equity oriented schemes come with an inherent volatility that investors love and dread at the same time. October 2018 witnessed a sudden fall and became a scary month for investors. Of course, it is natural for investors to be anxious about the future of their investments with media buzzing with news related to market crash and equities being hit. Many, who have opted for long-term Systematic Investment Plan (SIP), are seriously considering to pause until the market recovers or exit altogether.
Why the show must go on
You are most likely familiar with Recurring Deposits (RDs), where you invest small but fixed amount monthly/quarterly/bi-annually as opposed to one-time lump sum investment you do for FD. A SIP works the same way for mutual funds. Here, every instalment buys you units as per that period’s market movement. For instance, during the market rise, you will own a lesser number of units and vice versa. This way, you ride over the short-term fluctuations and reap long-term benefits. So, let the SIP continue and do not be bogged down by fear.
Aside from inculcating financial discipline, SIP averages out rupee cost and thus brings down risks. Hence, it is always prudent to invest through SIPs in a turbulent equity market. When the markets are down, the NAV of the scheme also falls, and you can purchase more units. Eventually, the market will rise, and the NAV can also increase. In the long run, your purchase costs will average out, and you reap the benefit in the form of capital appreciation.
Now, do you see why you should not pause your SIPs despite the scary market crash? Experts say this is the perfect time to reap more benefits from your scheme(s). Who knows, you might emerge as the winner when the market recovers.