This point suggests the importance of having a well-thought-out and disciplined investment strategy. Making decisions based on feelings, like quickly selling investments when the market is not doing well, might not be the best choice. It can lead to results that are not as good as they could be. It’s better to take your time and think carefully before making big decisions about your investments, especially when the market is going through a tough time.
The major goal of SIP investing is to generateprofit from the falling market. Rupee cost averaging is a strategy employed in systematic investment plans (SIPs), where investors contribute a fixed amount at regular intervals, regardless of the market conditions this approach allows investors to buy more units when prices are lower and fewer units when prices are higher. Over time, this strategy aims to reduce the impact of market volatility and potentially enhance returns.
Let’s understand with a simple example-
Imagine a conversation between you and your father about your salary investments
You: Hey, Dad I have something going on my mind.
Father: Go on, what is it tell me?
You: Well, I used to invest directly in individual stocks, always trying to catch the next big thing. But it got so stressful, and I couldn’t focus on anything else. So, I switched to Systematic Investment Plans (SIPs) in a mutual fund scheme last year, thinking it would be less hectic.
But guess what? All my SIPs are showing negative returns of 12% over the past year. I thought SIPs were supposed to be safe and protect me from losses.
Father: MyBoyit’s not that simple. SIPs are a good way to spread out your investments over time, but they don’t guarantee you won’t face losses, especially if the market isn’t doing well.
You: I get it, but why are my SIPs not performing as expected?
Father: Well, if the market is down when your SIPs are being invested, it can affect the overall performance. In one duration fund will perform well but in the second duration, it might not perform well. Also, the type of funds you choose matters. If you only pick funds that are in high-risk sectors, you might see more fluctuations.
You: So, I stop SIPs altogether?
Father: Not necessarily, SIPs are a long-term strategy. The cost averaging in SIPs works best when markets are down because you get more units for the same amount of money. What you can do is review your fund choices. Maybe diversify a bit and choose funds that match your risk tolerance.
You: Got it Dad I will reconsider my fund choices and stick to the long-term plan. Thank you!
Father: No problem son, investing is like cooking the right ingredients and patience leads to a great dish, so sometimes, you just need to add a pinch of risk to make it more exciting!
Watch More - The Mutual Fund Talk
Conclusion
Exploring online SIP investing promises a dynamic approach to wealth creation. While acknowledging the potential for market induced fluctuations and losses, our guide underscores the resilience of Systematic Investment Plans (SIPs) in the face of uncertainties.
Online SIP epitomizes a disciplined, long-term investment strategy, leveraging the power of rupee cost averaging. By understanding market risks, liquidity considerations, and the impact of interest rate fluctuations, investors can strategically navigate the financial landscape, armed with knowledge and a strategic approach, investors can harness the true potential of SIPs. The disciplined and long-term nature of online SIPs aligns with the principle of rupee cost averaging, allowing individuals to navigate the volatility of the market with prudence. The very essence of SIPs lies in the patient and disciplined commitment to a well-thought-out investment strategy.
Read More -Is SIP good for 1 year ? SIP - One Year Benefits 2024
