The Indian stock markets have more than doubled since the unfortunate crash in March 2020 on the back of low-interest rate regime and liquidity. As the stock markets enjoy the status of all-time high, there are several potential questions that might creep into the minds of investors.
Advantages of SIP
One of the biggest advantages of systematic investment planning (SIP) is the rupee cost averaging it provides to investors. Rupee cost averaging is a concept that enables investors to earn significant returns when invested for a prolonged duration of time. Under SIP mode, an investor ends up purchasing fewer mutual fund units when the markets are high than when the markets are low and vice versa – this averages out the total cost of mutual fund units over a period of time.
As it is next to impossible to correctly predict the market movements and distinguish the peak in the markets, it is recommended that an investor continues to invest in mutual funds through SIP mode of investment without worrying about market corrections. However, one should ensure that they invest in mutual funds through SIP based on their risk profile, financial objectives, availability of funds, investment horizon, etc. and not basis the changing market prices. Ups and downs are an inescapable part of investing in equities. Hence, continue with your mutual fund investments even when the markets are at their all-time high, as eventually the markets are bound to go up and so are the mutual fund returns.
While in the short run, the stock markets might seem to be touching their peak, it is difficult to predict how long the rally will continue. Hence, redeeming all your mutual fund investments or sitting on a huge pile of cash might not be ideal.
Remember, investing in mutual funds through lumpsum investment proves disastrous for your portfolio if the markets correct significantly suddenly. On the other hand, investing in mutual funds through SIP might benefit investors irrespective of the market cycles and even if there is an intervening market correction.
Source: Tax Guru