• Jul
  • 05
  • 2013

Systematic Investment Plans – Wise Investing

Dr. Sanjiv Agarwal

It has been over three years of high volatility for the Indian stock markets, influenced by key events that occurred (and continue to do so) during the period, both on the domestic and global arena. Retail investors have also reacted to the market volatility and poor returns, with a significant number of mutual fund SIPs (systematic investment plans) witnessing premature closures. The performance of mutual funds have largely remained flat. 

SIP (as a payment mode) is an automatic market-timing mechanism because a predefined sum of money gets debited from the bank account on a predetermined date every month, thereby obviating the need to time the market. SIPS follow the rupee cost averaging method wherein one averages the cost per unit of purchase, thereby allowing to smoothen the volatility of the markets. SIPs allow the salaried investor to put in small sums at regular intervals, enabling them to bring discipline into their investments. This mode of investing particularly benefits those investors who do not have the luxury of investing lump-sum amounts in the equity markets.

Typically, equity markets remain volatile in the short term, but its ups and downs smoothen out over time if one stays invested for the long term. Moreover, the magnitude of the return is largely dependent on the type of economy or market one is invested in. Furthermore, investing through mutual fund SIPs not only gives the benefit of investing small sums regularly over time, but it also gives the opportunity to participate actively in the long-term India growth story, steadily helping to build wealth in the long run.

Despite the ongoing economic slowdown and weak economic indicators, India today is a strong domestic consumption story, driven by favorable demographics, rising disposable income, and an increasingly dynamic corporate culture continually looking to widen its global footprint. Needless to say, with the economy expected to grow robustly, India is likely to remain one of the most promising and attractive destinations for international investors in the years to come. It is believed, and many agree that the next few decades will belong to India.

As an investor hoping to achieve wealth maximization, it may be advisable to actively participate in this long-term perspective India growth story. For that, one need to not only shed the resistance for the stock market, but also needs to increasingly look at breaking those stubborn in-built preferences for traditional instruments like fixed deposits and real estate. In other words, when one invest into the equity markets, one should stay invested for the long term. And mutual fund SIPs work well for those salaried and other individuals who have neither the means nor the time and temperament to invest directly in equity stocks.

Sandeep Kanoi

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