Is this a good time to opt for a bigger SIP?
When you increase your SIP investment now, you will purchase a larger number of units at a lower price. This, effectively, will bring down your cost of acquiring units and increase your chances to gain more as markets start to pick up.Updated: May 20, 2020 18:46 IST
This is the time when every individual you speak to has loads of advice to give about the economy and the markets Now, the option is to go with the herd and do what everybody is doing—get into worry mode, spread panic and lose focus on our long-term aspirations and goals. Or, be a contrarian and find that opportunity that lurks behind the shadows of gloom. You might be aware that markets by their very nature are turbulent in the short term. But you must also know that this turbulence is what creates wealth for those who are willing to wait it out.
Let’s take the example of the Lehman Brothers’ crisis in 2008 that shook the world markets. Back then, the BSE Sensex had almost crashed by over 60% from its peak in Jan 2008 to hover around 7,700 in Oct 2008. After absorbing the shock, the market began to recover and, over the next decade, multiplied fourfold. In October 2018, the BSE Sensex hovered around 34,000 points. Those who had stayed invested during the crisis registered positive outcomes.
The Covid-19 situation, therefore, could be a crisis that you should use to invest over the long term. It’s time to start an SIP. And, if you already have an SIP running, then it’s time you boosted your monthly SIP amount. There are plenty of reasons for you to do that but the key ones have been listed down.
•When you increase your SIP investment now, you will purchase a larger number of units at a lower price. This, effectively, will bring down your cost of acquiring units and increase your chances to gain more as markets start to pick up.
• The long-term India story continues to be intact and our consumption-based economy has a stronger chance of recovering in the future. So, every additional investment you make will give you a higher opportunity to gain when the growth rate is normalized.
•Good businesses make great long-term investments with much lower risks and your mutual funds would be utilizing this time to increase their investments in such companies. Your bigger SIP translates to more investments in strong companies at a lower price.
•Your mutual fund will also be using this time to cherry-pick good stocks that are likely to withstand the economic slowdown or have the potential to emerge stronger from it. This puts you in a better position to gain from companies that could emerge as leaders over time.
So, very clearly, it’s time to do what the world around you is not doing. Be rational and responsible with your investments. Make your SIP bigger and your future brighter!