The current times are testing times not only for the Indian markets but also for the investors. . These tough times can be seen as an opportunity or as a loss depending on each individual view point. The market was at its peak in 2007 and now it is much lower having witnessed a lot of ups & downs in between. The effect of this volatility would be negative on a naïve & emotional investor and he would probably quit investing for the fear of another downward phase.
On the other hand a smart investor would try to find ways to beat this volatility and convert it into an opportunity. One such smart opportunity is investing in a Mutual Fund through a Systematic Investment Plan (SIP). This is best for investors who don’t have the time, knowledge and huge capital to invest directly in stocks. SIP’s can truly be called “The 8th financial wonder of the world moreover SIP’s are apt in the current scenario as even big & regular investors are skeptical of investing huge capitals in the stock market.
SIP inculcates a habit of disciplined investing (i.e. every month) and the minimum contribution per month can be as low as Rs.500 thus it is even lighter on the wallet. From the way I look at it investing a larger amount especially in the current times is risky unless he or she is a very confident & informed investor. Another very important advantage is that of rupee cost averaging wherein when the NAV is low more units of the fund are purchased as compared to when the NAV is high. The table below illustrates the same:-
Let’s say for example, that you invested Rs. 1000 every month for six months. The table above shows that 125 units are purchased when the NAV is Rs.8 and just 83 units are bought when NAV is Rs.12.Thus the golden rule of “Buying more when price is low and selling when the price is high” is being followed to the T bringing down the average purchase price too. In conclusion I would just like to assert that a disciplined long term SIP can do wonders in multiplying your wealth. The earlier you start the more you can accumulate. So convert the current volatile times into an opportunity and start a SIP now.
Disclaimer:
1. Views as are mentioned in the article are personal views of Author and nothing to link with Co., its Director and Employees.
2. All investments are subject to market risk and you need to consult your financial advisor/consultant before investment