Considering the vagaries of the stock market, investors often ponder over reevaluating their strategies. Whether to continue to remain invested or wait for the correction to subside? This remains a crucial question in their minds.
While looking at the current situation in the market, a few investors are likely to be mulling whether to persist with their regular, systematic investment plans (SIPs) or ostensibly withdraw their funds from the market.
Having said that, SIP investors must ideally not waver on the decision to invest in either upward or downward markets. The SIP mode typically translates as a disciplined approach to investing in equities across various market levels. Moreover, SIP investments continue to provide several advantages, these include:
Rupee-cost averaging: Investing via SIPs ensures the acquisition of more units when the market experiences a dip. This reduces the average cost per unit over a period, potentially pushing returns upwards at a time when the market undergoes a recovery.
Growth through the power of compounding: Investments over a long duration introduce the power of compounding. Even modest and regular investments, when markets witness a dip hold the potential to grow significantly over a period.
Failing to make the most of market recovery: When an investor withdraws, this translates as the potential of not benefiting from the market rebound. Achieving perfect timing in the market is quite a challenging task.
However, some investors continue to maintain their stand in SIP investments even when the market experiences a dip. There is a possibility that the fear of a dip in investment value may intimidate a few investors; the realisation that the market adheres to its regular cycles and will eventually recover instills the much-required confidence to persist in contributing towards regular installments.
There are also a few investors who go ahead and allocate additional funds to stocks and mutual funds. They aim to capitalise on the opportunity to acquire more fund units or stocks at lower prices.
For such investors, the allure of potential gains on a long-term basis, which could be for more than a decade or so, is the core factor in making them adhere to their plans of sustaining their SIP investments.
The core idea is that irrespective of market movements, SIP investors should value optimism when it comes to commitment to regular investments. However, the optimal strategy could vary based on an investor’s intended investment duration in the market. Investors with a focus on short-term investment horizon and in the face of a substantial upward market trend could adopt a more tactical approach, such as lump sum investments or adjusting asset allocation according to risk tolerance, which could be a wise move.
For first-time investors engaging in SIP investments, it is crucial to be aware of the cyclical nature of markets. Usually, the phases of growth are inevitably succeeded by corrections. Consistent participation in SIPs needs to be the goal, as it streamlines the overall investment journey while negating the influence of market volatility.
In the case of every investor, an eye on the long-term perspective is necessary. The investment strategy needn’t be overly dependent on a bearish or bullish market,
Moreover, avoid being carried away by impulse when it comes to making investment decisions. There is a chance that you may get waylaid from your carefully chosen investment plan.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
