Why Sip Works Better During Market Correction?

The equity markets have been volatile for the past few months with sudden gains and falls due to Russia’s war against Ukraine, US Fed rate hike, Covid led disruptions and inflation due to commodity prices etc. The market has not given great returns in the last year, despite that everyone around will recommend continuing SIPs and investing through these periods for maximum benefits. SIPs will help earn optimum returns only if you stay invested for at least one complete market cycle.  Continuing with SIPs during the market correction will allow you to buy more units at a lower NAV and average the total investment cost. Equities is a volatile asset class and during market correction it’s gives an opportunity to buy equity at a lower price and reach the financial goals sooner.

Often falling markets scare you and you will stop your investments in mutual funds. Stopping SIP’s is a not a great idea, especially when the market is bearish. While the market is getting corrected SIP will work better as it will lead to cost averaging.  No one can time the market perfectly, thus SIP’s plays a vital role in investing. One of the most common mistakes people commit during market correction is over averaging the cost in individual stock by buying a stock at every dip on the belief that the average cost of acquisition would be lower, and once the stock recovers that would enhance their return.

No one has huge amounts of liquidity to invest at fixed intervals. Putting away fixed amounts every month or quarter works well for all investors big or small. The convenience and hassle-free benefits of the money getting deducted automatically from your bank account are unmatched. By avoiding the need for human intervention, you avoid the emotions of fear and uncertainty taking over. Neither do you have the stress of keeping tab on the market. Opting for SIPs is more realistic even from a logistical standpoint. Volatility is the very nature of the equity market; it is important to note that the market may not always be quick to bounce back after a correction. It is how we use market volatility to our advantage, perceive the situation sensibly, and devise an efficient strategy that decides our investment success. The best way to sail through market volatility is to invest in a SIP. If the market volatility continues or if the market corrects further from the present level, the rupee-cost averaging benefitfrom SIPs would take care of the intermittent volatility, more units will be added on during the corrective phase of the equity markets, and when it begins to ascend again, this strategy will compound your wealth.

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