The market seems to have entered a bear phase and will remain volatile against the backdrop of stressed macro numbers. The markets have corrected over 20% from its peak resulting in losses in the portfolio. Investors have seen their investments in equity mutual funds losing all the gains made in the last year. The investors are certainly jittery to make further investments in equity in lumpsum as they have suffered losses in every dip they were making a new investment. However, a long-term investor shouldn't worry about such losses as the recent experience of the COVID crash is fresh in everyone's mind. The recovery from the stock market crash experienced due to COVID happened too fast for many to feel the impact of bear markets. However, we have seen that volatile or bear markets can be more prolonged and not give you significant returns for some time. The returns may not earn even the bank FD rates or offer negative returns for a considerable period to make you lose your patience. Participation in the markets is the key to generating returns to beat inflation, but volatile markets make investors avoid its due exposure. We are bringing you two strategies that have seen their importance in many volatile markets in the past-
SIP- Systematic Investment Planning
A product that has become a household investment tool for many families and has a proven track record as a wealth builder. Mutual funds in India have now over two years of track record and many have experienced the benefits of SIP. In these bearish markets, investment through SIP has given enormous benefits as the investor can accumulate higher units with every lull month in the markets. Thus, it is prudent to continue with your SIPs and enhance your exposure in such a phase of markets. Increasing allocation can be done by adding a new SIP to the portfolio or investing in tranches in the ongoing SIPs with every market dip. This has helped many maximize their portfolio returns when the bull run is back in the markets. The methodology is appropriate for those with a regular flow of funds and a small portion of funds out of monthly accruals gets invested through SIP. The funds accumulated in your savings account deny you the opportunity to make much higher returns than savings account rates.
STP- Systematic Transfer Plan
STP is another way of beating volatility and taking exposure in markets when one is confused about the up and down movements of Sensex. One invests the amount in liquid funds and the fixed amount gets regularly transferred to the chosen equity fund. Now, this is tricky to decide - what should be the investment interval and how long the investment tranches should last. The decision should depend on anticipating how volatile markets would remain and how long they could remain bearish. More markets are expected to be volatile, and one can opt for a shorter period of transfers rather than a longer end. A systematic transfer can happen daily, weekly, monthly, or as workable for the investor at any other interval. It might sound technical, but it can help the investor avoid timing the market and help attain a lower average purchase cost of the units bought.
We are confident that the two investment styles are known to you all and would have experienced them at some juncture of your investment journey. However, the situation we all are in makes it imperative to consider these options rather than wait for the best time to invest. We all know timing the market is impossible for anyone, yet we desire to enter the market at the lowest level. The STP and SIP are two sides of the same coin, which helps bring discipline to investors' investment behavior. However, the choice of the strategy depends on many factors and one should seek an opinion from an expert to cushion the bumpy ride of investing.