Everyone gets election jitters even mutual fund investors. Here’s a short how-to guide to protect yourself from market volatilities.
A Look Back:
General elections in India tend to be marked with uncertainty over the outcome and its possible implication on the stock markets. Many new mutual fund investors are confused during such phases and understandably so since they have seen considerable volatility during economic and political changes. So, what should you do as an investor?
The Way Forward:
If you’re a smart investor, you obviously will try to find ways to mitigate the adverse impact of market fluctuations. One of the best ways is by choosing SIP (Systematic Investment Plan) investments over lump-sum. Instead of putting a large sum of money in one go, you divide it into smaller instalments.
We’ve outlined three major benefits of SIP:
Rupee Cost Averaging: SIP allows for averaging investment costs. The fundamental mantra behind rupee cost averaging is ‘you get more units for a lower price’. When markets are down, you get more units of your scheme. When markets high you get fewer units for the same amount. In this way, your average cost per unit in volatile markets turns out to be lower than when you invest in a lump-sum. For example, in Jan 2019, Anil bought 1250 units of Scheme A at Rs. 40,000 (@Rs 32 per unit). His friend Jayesh invested through SIP. Let’s look at Jayesh’s weighted average cost:
|SIP Date||SIP Amount||Per Unit Price||Number of Units|
|15th January, 2019||10,000||32||312.50|
|15th February, 2019||10,000||36||277.78|
|15th March, 2019||10,000||30||333.33|
|15th April, 2019||10,000||28||357.14|
|Total*||40,000||31 (Weighted Average Cost)||1281|
We can see that Jayesh gets more units, and his cost is lower.
Safer in volatile markets: With a SIP you lower your risk from market volatilities because your investment is averaged out. Whether markets are high or low, your investments continue. Moreover, unlike a lump-sum investment, you don’t need to time the markets. Taking the example of a general election year, if you had to invest in lump-sum, you obviously would be keeping a close watch on market movements. In a SIP your investment does the job for you. It continues even during turbulent times, allowing you to spread your risk across a longer time-frame.
Flexible Payments: You can customise your SIP investment based on your financial situation. So, let’s say you start out with a small SIP in line with your income. As your income increases, you can choose to increase your SIP contribution. This increases chances of achieving your personal financial goals by accumulating greater wealth.
Your Call Now:
Now that you know how to invest in times of uncertainty, how are you going to play it? If you’re a smart investor, choose SIP and mitigate risks, especially in situations where markets are affected by events. To start SIP investments with Digibank, open your DigiSavings account today! We offer over 250 Mutual Funds from 15 Asset Management Companies.
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing.