After touching the 40K mark in June this year, SENSEX has fallen 3500 points and now trading around 36K. Nifty, Sensex and almost all leading sectoral indexes have shown negative growth in past one year. Mutual funds are either in red or have a next to nothing return in one-year charts. Most of the investors in SIPs have been sitting on losses. In such a market condition questioning the continuation of SIPs is obvious.
Don’t run only by greed and fear.
Humans run by greed and fear. When share markets are peaking high, mutual funds reflects returns in two digits. Annual returns of 20-30 per cent are more than enough to lure anybody into investing. These are the times when stock prices have just climbed their peaks and in a mood to take some rest and about to tumble down, in trading terms it is called ‘correction’. And at these time, human greed comes into play and we make investments into mutual funds. At these times mutual funds NAVs are high thus less unit get allotted.
But stock prices don’t move in a straight line. If prices are soaring for the last 6 months without falling, there is no guarantee that tomorrow will be so. One fine Monday, share market crashes. We start calculating returns based upon current NAVs and find that a loss is there. Fearing more losses, we withdraw funds by booking current losses.
Better Investing Strategy
But a good investing strategy could be the opposite of this. Invest in mutual funds, when the market has corrected and withdraw funds when it peaks. But it is not generally possible to access whether the market has bottomed out or going to fall more? If you are good at this peak/bottom prediction game, better go test your luck in investing directly into shares, why go for mutual funds route? Whatsoever, the point is that passive investors should invest regularly into mutual funds rather than affecting by share market ups and downs. And the route is SIP (systematic investment plan), where one invests a fixed portion of this monthly savings into the mutual funds.
The Indian economy has shown a slowdown in the last few quarters and Indian stock markets has touched its all-time high of 40k in just last quarter. Thus markets are undergoing a correction phase. As Indian growth story has not been impacted irreversibly, markets are bound to recover, if not very soon than not so late. Yes, there exists several sectoral problems but long-term growth track has not been left out. India’s growth is here to stay. Based upon this it seems a good time to invest in quality companies right now but as earlier said it is not easy to tell whether the market has bottomed out or will fall more? Thus, accumulating quality companies at lower prices is a good investment strategy to create wealth and SIP is the way for investors with a long-term view.