After much analysis and debate, you have taken the plunge and invested in the equity fund thasan (SIP), a step by step way towards generating wealth, you hear that equities are in a free fall, or are too risky or are too overvalued.
Here are four reasons why you should invest in equities for the long-term and continue with your SIP.
Reduces the average cost
In SIP one starts investing a fixed amount regularly. Therefore, one ends up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. Generally, those who are not well versed with the swings of the market would stay away from buying when the markets are down. They mostly tend to invest when the markets are rising.
Starting an SIP tends to bring discipline to our portfolio as SIP investors buy even when the markets are low, which actually is the best time to buy. As an investor you don’t need to time the market. Always remember markets will fluctuate but your financial goals won’t!
Invest regularly for power of compounding
Compounding is the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. The interest you will earn from your invested amount will be re-invested, and thus increase your principle amount. Starting an SIP will help you harness the power of compounding as you invest a set amount every day/ week/ month irrespective of the wild swings of the market.
Market timing gets irrelevant
One of the biggest difficulties in equity investing is to determine when to invest? Apart from the other big question, where to invest? While investing in a mutual fund solves the issue of where to invest, SIP helps us to overcome the problem of when to invest. SIP involves disciplined investing irrespective of the state of the market. When the markets are high, it may not be prudent to commit large sums at one go, thus balancing your portfolio. This makes timing the market less relevant, therefore reducing your worries about the state of your investments in volatile markets.
Does not strain daily finances
Mutual funds allow us to invest very small amounts (starting from Rs 100) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our finances. In fact, SIP becomes one of the ideal investment options for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market. Deep-pocketed investors who wish to accumulate their savings prudently might opt for a larger SIP amount.
It makes perfect sense for you to invest in equity mutual funds for the long term, to help you achieve your financial goals. The fund that you chose to invest has to have values that reflect your own. If you do your homework and chose a fund whose investment philosophy resonates with you, then we recommend that you continue the SIP. There will be times when your fund doesn’t do well. However, persist with your equity investment and keep the long-term goal in mind. Do not be swayed by short-term views and opinions which keep changing with the hour.
Source: Quantum Mutual Fund