From 38,144 on 2nd March, the Sensex plummeted to 25,981 over the 20-day period till 23rd March, the day the lockdown was announced. However, it recovered to the pre-lockdown level of 38,140 by 23rd July although we are still are battling with the virus and a completely distressed economy.
In May, 2020, in our article titled Should you discontinue your SIPs?, we explained the benefits of continuing with Mutual Fund SIPs, even during market falls; we also talked about the adverse impact of discontinuing SIPs.
The following table confirms that investors who continued their SIPs would be happy about it.
From the above table we can see that within a span of just four months, equity mutual funds delivered returns that were greater than the downfall faced in 20 days during the month of March. In fact, SIP investors who continued their SIP during this downfall were able to purchase more mutual fund units, that too at a lower price. This will definitely contribute towards creating wealth for their future financial goals.
Catching the top and bottom of the market is a myth. No one has successfully managed to repeatedly time the market over longer periods of time. Once an opportunity is missed, it is missed; waiting for something similar to happen in future will further reduce the chances of creating sufficient wealth for your future goals. Wealth creation is a long-term process; the earlier you begin the more time you can give your investments to grow.
Keep in mind these simple truths before you invest in equity mutual funds…
1. SIP in Equity Funds should be for the long term- Once you start an SIP in Equity Mutual Funds, it should be like one-way traffic; neither should you take a U-turn and nor should you stop until you reach your destination. The most important emotion which has to be sustained is the patience to continue your SIP. This is the most important key to wealth creation.
2. Volatility is permanent in equity markets- Investors may come and go, but volatility in the market is there forever. If you fear market volatility, then it is advisable to not enter the equity market. In fact, if you stay invested in equity funds through SIP for longer periods, the effect of volatility on your investments decreases.
3. Don't check your portfolio continuously- Investors tend to check their portfolio as soon as there is any sharp movement in the market. This makes them more anxious and more doubtful about their investments. Checking your portfolio once in a while is a must so that you can keep a track of where your investments are actually moving; but reacting to the noise in the market should be completely avoided.
4. Don't let emotions cloud your judgement- Many investors have been losing money in stock markets due to their inability to control their emotions, particularly fear and greed. During the bull market, they invest more, driven by the greed to earn more. During the bear market, they stop their SIP investment or redeem the money, driven by fear of incurring losses. In both the situations, investors lose their hard-earned money and blame the market, calling it a gamble. That is why it is advisable not to panic when the market falls and not to get excited when the market rises. Investors should only focus on their long-term goals and not on short term returns.
It is a common belief that one can make money simply by investing in the best performing funds. What people don’t realise is that in order to create wealth, you must also be patient and hold on to those funds for a long period. Low SIP returns are sometimes a result of volatility in the market. But if one continues their SIP, the effect of volatility decreases over the long term.
You may also like to read: Finding sane companies under insane market conditions…
Disclaimer
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
Consult your financial advisor before taking any investment decision.
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflicts of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.
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