Mutual Funds: All About Timing the Market and SIPs

There is a general perception that investing is related to timing the market, and this is linked to systematic investment plans (SIPs) as well.

However, using the SIP mode for a mutual fund scheme is all about disciplined investing. An investor chooses an amount and a frequency, which may be monthly, and consistently invests in the mutual fund scheme as per choice, irrespective of conditions prevailing in the equity markets.

Essentially, timing the market accurately involves predicting the short-term upward or downward trends of stocks or the overall equity market in general. Engaging in regular buy or sell decisions as per market trends could pose difficulty. However, investing in mutual funds via SIP mode eliminates the requirement for such guesswork as it involves adopting a systematic approach where consistency and discipline are crucial.

Also, an investor can look forward to raising the SIP amount as the income grows on an annual basis.

When the market experiences turbulence, an investor may be tempted to pausing a SIP. SIPs eliminate the requirment for market timing, however. The short-term downward trend does not have any impact on SIP.

In addition, creating and adopting a suitable asset allocation strategy also ensures that an investor remains systematic in their investment process and can eliminate behavioural biases which tend to arise with market fluctuations.

Another benefit associated with SIP is that an investor has the option to start small and raise the amount subsequently. Also, it is possible to top-up or raise the SIP amount in line with the rising income levels.

It is just not possible to determine the perfect time to start or end the SIPs considering that the market is unpredictable. However, an investor must ideally link their SIP investments with their long- and short-term financial goals.

An investor should not be influenced by market setbacks, which are temporary, and lose focus on their investment goals. Also, diversification of investments is crucial to tide over a rough patch in the equity market. In this regard, investing via SIPs on a consistent basis is an effective tool for addressing the concerns of market volatility.

It is important to note that SIPs should not be started or stopped in an abrupt manner. Investing in mutual fund schemes via SIP on a long-term basis ensures success for investors.