The Sensex index has slowed down after hitting 80,000. The upcoming budget is generating high expectations from investors who are hoping for positive changes in all sectors. The market is showing heavy losses amid widespread fears of a possible stock market crash due to continuing geopolitical tensions and high stock prices in line with the current market trend.
Analysing the current market situation, we see that the Indian equity market is in a volatile situation following the recent peak. Excitement over stocks and sector performance has propelled the market to achieve new milestones, leading to profit booking by some investors, subsequently causing a slowdown. Investors are eagerly waiting for the upcoming budget and its possible impact on various sectors. This cautious approach could lead to hesitation in the market.
“Investors are eagerly awaiting the upcoming budget and its impact on various sectors. This cautious stance could lead to hesitation in the market. Moreover, global uncertainty could make investors nervous, turn risk averse and pull out of equities.”
However, this should not discourage investors who avail of Systematic Investment Plans (SIPs). For SIP investors, there is no need to hesitate on whether to invest in a bull or bear market. SIP offers a disciplined approach to investing in equities in different market conditions. With SIP investing, the entry point is not important.
When the market is falling
During market downturns, investor sentiment can become highly emotional. It is an instinctive reaction to sell assets at a loss out of fear, ignoring the possibility of a recovery. Individuals often feel more pain from losses than the pleasure of gains. As a result, investors may hang on to underperforming stocks to avoid admitting losses on paper, even when selling may be a wiser choice for long-term gains.
What often goes unnoticed is that during market downturns, SIP investing allows them to buy more mutual fund units at a lower Net Asset Value (NAV). When markets fall, SIP investors benefit by accumulating more units in their portfolio and averaging out the cost per unit over time. Stopping SIP erodes their financial gain. When markets recover, the value of these units can rise, increasing their returns.
Above all, SIPs promote disciplined investment habits: by investing a fixed amount consistently, irrespective of market conditions, you prevent emotional decisions being made due to market fluctuations.
When the market is rising
There is a common concern among SIP investors about the wisdom of staying invested when the market is booming. Many SIP investors overlook the ongoing benefits of rupee cost averaging throughout the investment journey, not just during market downturns. As the market rises, you buy fewer units at higher prices, but you may have acquired units at lower prices earlier in your SIP period. This approach helps stabilise your overall cost per unit over time.
Predicting market peaks is extremely difficult even for experienced investors. SIP eliminates this uncertainty by ensuring stable investments irrespective of market fluctuations. It is not uncommon for market downturns to last for long periods. However, historical trends show that the stock market tends to trend upwards in the long term. Investing through SIP enables investors to avoid short-term volatility and capitalize on long-term market growth.
Lost Opportunities
If you stop SIP during a bull market, you may lose out on additional gains while your funds remain inactive. SIP ensures continuous investment and allows you to participate in potential growth opportunities.
Additionally, you may consider strategic profit-taking during bull markets by withdrawing some of your investments and locking in any gains. These funds can then be reinvested later or allocated to other financial goals.
Though the market remains strong, small fluctuations are making new investors cautious. If you are risk averse and these fluctuations are a concern, consider reducing your SIP amount a little during bullish periods to give yourself some breathing room. However, SIP investing ensures that your investment strategy remains consistent regardless of market movements. In a bearish market, you may choose to invest more depending on whether you are willing to go with the market trend.
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