Market volatility is a vital aspect to consider when making any market-linked investment. If not careful, it could seriously hurt your investments, and if handled well, it could even turn out to be profitable. But there is confusion regarding what you should do with your SIP investments during market volatility. Moreover, SIPs are meant for the long term, and often, the investment is set to autopay. So let us learn more about SIPs and see how you should manage your SIP investments when the market is unstable.
What is an SIP?
SIPs are not an investment vehicle but a tool for systematic investments in mutual funds. With SIP, you can invest smaller amounts in mutual funds monthly to create a formidable corpus in the long term.
Hence, SIPs are always meant for long term investments.
There are two scenarios where risk plays a factor in any investment vehicle. The first is the timing of your investment, and the second is the volatility during the investment term. So let us figure out how this plays out in the case of SIP investments.
When is the right time to invest in SIPs?
As said above, SIP investments as always meant for the long term doesn’t matter which mutual fund you choose. This factor makes timing insignificant when it comes to SIP investments. Of course, you may research and find the right time for the first instalment. Still, the instalments after that are mostly automated, and it is tough to foresee market volatility of every instalment date in the future. Hence, you can start your SIP regardless of how the market is behaving right now. In most cases, long term returns tend to offset these small-term dips. But it is imperative to invest in a mutual fund that has potential for growth in the longer term.
Volatilities while holding investments
Market volatility is unavoidable in long term investments. They are often unpredictable too. But, as said above, markets tend to grow in the longer term, and so do your investments. But what should you do when the market is volatile, and you have a corpus that is being built through SIP? The tips below may help.
Do not panic sell
The first and the most important rule is the simplest – do not panic sell. Often, investors get worried seeing a market falling and tend to withdraw their investments. This can cause you loss, and your years of hard work can go through the drains. Instead, understand that markets almost always correct themselves when such a situation occurs. Additionally, if history is to be believed, markets will continue to grow.
Stick to your goal
For SIP investments, it is best to forget about the small-term market volatilities and stick to your investment goal. Of course, these dips can affect your portfolio in minor ways, but as said above, markets tend to correct themselves in the longer term.
Here, instead of worrying about the volatility, analyse the same and see if the descent has negatively affected your goal’s term. If yes, it is wise to increase your monthly contribution to adjusting to the desired term.
Do not stop investing
It is an equally bad idea to discontinue your SIP investments during market volatility. This can only hurt your investment’s growth, and you may need to make more significant adjustments to reach your desired goal in time.
In the long term, market volatilities tend to have a limited effect on SIP investments. Hence, make sure you stay invested to gain the desired profit within the planned term.