SIP investment plan is about investing a little amount over time instead of investing a one-time lump-sum amount leading to a better return. While you may think of a one-year SIP as one investment, each SIP is seen as a fresh investment.
Due to coronavirus, the last few months have been testing times for equity SIPs as the market has been extremely unstable and in the coming days, volatility is expected to rise even further. Equity SIPs have failed to meet expectations from bank FDs due to the sharp correction post-January this year. Numerous investors, who are managing salary cuts and loss of income, are hoping to stop their SIPs due to income shrinkage. That’s why experts are asking to reshuffle the portfolio and that ending SIPs is not advised, as there are few reasons why mutual fund makes sense for wealth creation right now.
If investor stops or pauses investments during a volatile or bad phase like the current pandemic situation in the market, an investor is letting go of an opportunity to buy more units. An investor should assess his risk appetite. Equity is a risky investment. It is also extremely volatile. These two factors make equity investing extremely risky in the short term.
The current economic scenario is challenging for many companies. There can be short-term setbacks, but ultimately the market will move forward. The reason is simple; India is one of the largest and most thriving economies with a massive population of 1.3 billion. Such a huge market can revive its demand and prosperity on its own. So, taking a long-term perspective, this crash has provided a golden opportunity for those who are looking for wealth creation. There are a few things the investor should know about their Mutual Fund SIPs.
April witnessed 6 debt schemes of an open-end fund house unable to pay money to its investors and deciding to finish up. These schemes had approximately Rs 250 billion in AUM. Severe market dislocation, the illiquidity due to Covid-19, and high credit risks were the reasons for the closure as per media reports. Such events can test the financial system which is already fragile.
Investors should use this opportunity to deploy capital in equity mutual funds if they don’t have enough exposure to the asset class. Investors should continue with SIPs to take advantage of higher valuations and volatility.