Beating market volatility is almost impossible even if you are seasoned investor. One way to overcome market volatility is to enter and exit market before it turns volatile. But predicting market is not easy and several investors end up losing their money because them invest too much or exit when the start losing fearing they might lose their entire investment amount. What one should do in such a scenario is that they should take advantage of the falling markets and buy low. The markets may seem volatile at the moment, but they have always risen from the ashes and worked charms for those who remained patient.
It is natural for investors to feel unsecure the moment they see their investment graph going downwards. However, the only other way to beat market volatility and ensure that your portfolio continues to grow over the long term is to inculcate the discipline of regular investing by starting a monthly SIP in a mutual fund scheme of your choice.
What is SIP?
Systematic Investment Plan, often referred to as SIP, is an easy and convenient way to ensure that you save and invest small fixed sums at regular intervals. The biggest advantage of opting for SIP over lumpsum investing is that investors do not need to have large sum to start investing. Investors can decide how much they want to invest as long as this sum equals to or is greater than the minimum investment amount mentioned in the SID (scheme information document).
To beat market volatility through SIP investing, investors must have a long-term investment horizon. Several people complain that its been 3-4 years, but they haven’t yet been able to recover the invested capital. That’s because they have not kept a track on the performance of their mutual fund investments and also not kept a long-term investment horizon. If you are starting a monthly SIP in equity funds, you must knowthat equity funds are highly volatile over the short term. Also, if you redeem your gains within one year from the date of investment, your gains are eligible for a short-term capital gain tax of 15 percent.
SIPs might actually be a simple yet effective way to earn long term wealth, however one must ensure that they continue investing keeping a particular goal in mind. This will make sure that they keep a watch on their investments and ensure that they are moving in the right direction. Also, you can increase the SIP amount by 10 percent every month for better returns.
When the markets are volatile, SIP works even better. When the markets are low and the funds are not performing, this leads to a low NAV. SIPs actually benefit from falling markets as you receive more units. When the scheme regains its momentum and starts performing again, the value of the allotted units increases, thus adding more weightage to your portfolio. This is referred to as rupee cost averaging, an investment technique that allows SIP investors to benefit from falling markets. Rupee cost averaging also ensures that with time you receive maximum gains by minimizing investment risk.
Long term investing in mutual funds via SIP can pave the way for compounding technique as well. When the interest that you earned from the amount invested starts earning interest of its own, compounding seems to come into effect. Power of compounding holds the potential to turn your small monthly SIP sums into large corpus. To witness your small SIP sums, multiply and compound into wealth, investors must continue investing in mutual funds via SIP for the long run.