ARTI ARORA CFP CM | HEAD FINANCIAL PLANNER
Financial planning is the core of any form of advisory we render to our clients. We always lay emphasis on the benefits of having a written plan but even where the client does not sign up for it, we ensure a methodical and well researched approach which is also centred on and around our clients’ specific situations.
Keeping our clients informed and educating them at all times remains our endeavour as well as our forte. The subject above has been dealt around in numerous times on practical level and this time around we thought of writing it down for convenience and understanding of one and all.
SIP or Systematic Investment Plan is a strategy that is propagated or professed as a disciplined approach primarily in market linked or equity oriented investments to benefit from its inherent volatility.
While the value of investment in a SIP appreciates in a rising market, more number of units get allotted in a tough or falling market as the mutual fund NAV falls down. When the market situation improves and the indices rise, the value of consolidated units increases. This is how the principles of cost averaging as well as compounding work when you invest in an equity or market linked avenue through the SIP mode.
If one gives up on their SIP investment in a tough or falling market, the entire premise and logic behind starting one gets forfeited. The intent is to benefit from one staying in the market amidst its highs and lows and benefitting from staying invested. If it was not for market volatility, SIP mode of investment would never have come into practice, let alone being one of the most advised models of investing in equities.
A tough market is an uncertain market which is also on the falling end of the curve and the fear that there could be a free fall and all sorts of speculation around it leads investors to worry and panic and either withdraw their investments at lower values or stop further investments in the market and sometimes both. This investor behaviour is completely uncalled for and is responsible for them incurring losses.
Before making any market linked investments, two things should be completely clear and put forth. One is the investor risk profile and the other is the time horizon of investment. Once, these two are clearly derived and understood, only then market linked investments should be undertaken in line with these variables. Having done this basic science, one must stick to their SIPs and investments at all times until and unless something really drastic happens to take place either at personal level or economy level.
Giving up on your SIP investments in a tough market is akin to playing against the rules of wealth creation with only one and assured possible outcome of not being able to meet your financial goals. SIPs need discipline, focus and commitment and you need to hold on to these irrespective of what the market situation looks like.
A tough market situation warrants an investment strategy as a SIP for one to benefit from as a smooth market situation doesn’t really need one to strategize.