Invest in SIPs When the Stock Market is Down: In a literal sense of going backward, the markets have consistently dropped the past few months of 2022, with Foreign Direct Investors selling off major stakes in their Indian investments.
Besides this, inflation has hit a yearly high, the Rupee has fallen down to 78 on the dollar and fuel prices have been hitting new numbers every week. When the markets are up and booming, everyone is interested in investing but when it crashes, nobody can stand looking at it.
In such times, almost every investor loses money, irrespective of their risk portfolios. This is especially true in times of inflation, recession, and market correction. With Sensex and NIFTY consistently falling this Financial Year, it has a lot of investors questioning their investment strategies.
Low-risk investors, who invest through SIPs (Systematic Investment Plans), tend to pull out of their holdings during such times. But is that the best decision to make? Read ahead to find out this article on Is it Good To Invest in SIPs When the Stock Market is Down?
What is a SIP?
A SIP is an investment plan, where every month, a certain amount gets invested into a basket of stocks or funds. It is a long-term investment plan that investors can use as a vehicle to drive their portfolio value upwards.
For example –
If you’re earning a salary of Rs. 30,000 per month and you invest 10% of your income in a SIP fund for 10 years, at an ROI of 12%.
Investing Rs.3000 a month in KLM Fund, for 120 months (10 years) amounts to Rs. 3.6 lakhs.
At a 12% ROI, your estimated returns would be Rs. 3,37 lakh. Adding your principal investment, it amounts to 6.97 lakh, which is almost a 100% increase in wealth.
Even at a 6% return adjusted for inflation, your returns would be Rs. 1.34 lakh, which is still okay. Adding returns and investment, you would be left with 4.94 lakhs after 10 years. You can use a SIP calculator to check it yourself, adjusted with your income and investment goals.
When The Market Falls
When markets fall and share prices drop significantly, investors pull off their holdings, mostly to mitigate their losses. This means selling the stocks at a discount for a loss, hoping that the share price doesn’t drop even lower in the near future.
In such situations, it’s easy to get carried away with the herd investor mentality of selling your entire holdings because of short-term volatility. So if your investment plan is spanning anywhere between 5 to 30 years, then market crashes should not cause your entire portfolio to be liquidated.
Also Check Out: 6 Common Mistakes to Avoid While Investing Through SIPs
Is it Good To Invest in SIPs When the Stock Market is Down?
The purpose of starting a SIP is mainly –
- Diversifying your portfolio
- Increasing your wealth while protecting it from inflation.
So if your goals are long-term, then your investing strategy should not change due to temporary market movements. Even the COVID-19 pandemic disrupted the market for a short period of time before the markets started to rise again.
The duration of your investment goals far outweighs the duration of market crashes. Also, within every crisis lies an opportunity. Equities of small-cap, Mid cap and even large-cap companies will all be trading at a discount, which is a great opportunity.
When the stock market falls, you can buy more securities at a bargain price. For the opportunistic investor, this is a great opportunity to buy large quantities of stocks at a discounted price. Long-term investors such as yourself should hold onto their investments and strategize to improve their risk aversion.
You should not stop your investments during a bear market or market crash. Chances are that the market will recover in the near future and the present market scenario is an opportunity to invest more and diversify your portfolio.
A SIP is one such investment strategy that is designed to reduce your overall exposure to risk. Hope this article on “Is it Good To Invest in SIPs When the Stock Market is Down?” has answered all of your questions.
Get more updates and keep yourself updated with the Fingrad blogs section. Happy Investing!
Tags: Does SIP have risk when the stock market falls?, Is it good to invest in SIP when market is down, Should I invest in mutual funds now, Should I invest in mutual funds when markets are down?, Should I sell My mutual funds now 2022, Should I Stop My Sip During A Market Downturn, What investments do best in a down market?, What should I invest in if the stock market crashes?, Invest in SIPs When the Stock Market is Down