Top SIP Investing Tips During an Unsteady Market


July 20, 2021

(3 min read)

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Did you know that Systematic Investment Plans or SIP are one of the best ways to invest in a volatile market? These plans allow investors to put in a pre-determined amount at fixed intervals instead of putting in a lumpsum amount. What makes these plans attractive is that they offer the advantage of rupee cost averaging over the long run while minimizing the risk involved in lumpsum investments. The investors can decide the investment amount and the frequency of investing depending on their financial position. An important thing about SIPs is that it inculcates financial discipline in investors as they get into the habit of depositing a specific amount every week or month or quarter.

The Advantage of Rupee Cost Averaging

The markets do not generally witness all cycles in the short term which means the number of mutual fund units that can buy depends on the market trend at that time.  But when you invest in a SIP over a longer period, you can get some units at higher prices and some at lower prices as the market trend changes. This leads to the averaging of the acquisition cost of the mutual fund units.

Advantage of Compounding

Another benefit that you can reap from investing in a SIP Is the power of compounding.  This means your interest earnings on your investment are added to the principal amount which in turn boosts the future returns (because you earn interest on interest). This power of compounding is beneficial when you invest for a long term and aids in the generation of wealth.

Tips for Investing in SIPs when Markets are Volatile

You can plan your investment in mutual funds via SIP in such a way that they help you achieve your financial goals. Here are certain tips that can prove helpful for you to reap the full benefits of your SIP investments:

  • Invest for the Long Term: The most important tip for SIP investing is that the investment horizon should be long enough to allow you to benefit from the rupee cost averaging. You can use an SIP calculator to determine the returns you can earn by investing in a particular scheme.
  • Do Not Panic Sell: Never sell during a downturn. Panic selling in falling markets is not a wise decision. Instead, you should wait for the markets to recover. Rather than selling your units when the markets are down you should consider buying more units to bring down the average cost of acquisition of the units.
  • Diversify Your Investments: Never put all your funds in one mutual fund. Instead, diversify your investments in mutual funds by choosing different plans with different portfolios. This will not only diversify your risk but also offer you exposure to different segments with different market cycles.
  • Analyse a Fund’s Track Record Over a Longer Duration: When reviewing the past performance of a fund, do ensure that you choose a reasonable time that covers the full market cycle. Investing based on short term or recent performance of a fund is not the right approach.

SIP offers you an opportunity to use your surplus earnings for investment in mutual funds and remaining invested through the ups and downs of the market allows you to create wealth.

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