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07 OCTOBER, 2019
"Be fearful when others are greedy and greedy when others are fearful"- said Warren Buffet, the contrarian investor who made it rich.
The markets are going through a bearish phase. The reasons are many - global macroeconomic headwinds, trade differences between US-China, crude price fluctuations etc. Some investors are succumbing to panic selling of stocks or pausing SIPs or redeeming their holdings to mitigate losses. However, before you follow suit, think again! A dip in the market is no reason to put the brakes on your SIPs. In fact, during a market correction, being contrarian, as advised by Warren Buffet, might actually be rewarding and help accumulate more units for the same NAV price. Check out how you can balance your investments when the market is playing see-saw.
First and foremost, it must be remembered that volatility is an inherent feature of investing in the stock markets. Investing in capital markets may provide higher returns and are associated with higher risk, relative to low- risk, safe investment avenues. This follows the fundamental tenet of finance-high risk, high return. Thus, SIPs running over a long run of 5-10 years would encounter several peaks and troughs in the markets.
Broadly the gains from sticking with your SIPs are
Mutual funds via SIPs are a very popular investment option amongst Indians. Investing via SIPs involves a fixed, regular monetary allocation to a mutual fund scheme in return for units at the prevailing price or NAV. Thus, a long-term investor is able to accumulate more units at a lower NAV in case of a market downturn and vice -versa. From a long-term investing horizon, the average cost per unit falls. This also aligns with the investing strategy of ‘Buy at a low price and sell at a high price.’ The additional units gained during a bear phase could be sold during a bull phase to book higher profits.
The returns generated from staying invested during the long term can result in compounding gains.
Besides inculcating financial discipline of regularly channelizing a fixed portion of funds towards investing for wealth creation in the long run, SIPs also do away with the need to time the market. Thus, irrespective of whether the market is in a bear or a bull phase, one is able to benefit from both situations and effectively manage the risk-return tradeoff. So measure all this advice and invest wisely!
Disclaimer:Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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