Everyone agrees with the fact that the market movements are not linear, and tend to react on every small and large development. And, irrespective of the developments, whether negative or positive, the market tend to create value for all types of investors.
In this age of global uncertainty, geopolitical tensions and economic challenges in the domestic front, market trends remain unpredictable. Such short-term volatility severely impacts the performance of equity portfolios and MF schemes, thus testing the nerves of the investors.
If you look at, how much dire the picture looks in the short term, investing over the long term period is always rewarding.
And, in the case of SIP investments, such short term volatility and negativity are blessings in disguise. In fact, SIPs are designed to take advantage of such market conditions to drive up the value of investments over a long term period.
Rupee Cost Averaging
All SIP investments come with the benefit of rupee cost averaging. This is an approach of investing, in which you buy more units when prices are low and less when it is high. This strategy helps you to keep your overall cost of acquistion low and lessens the effect of short-term market volatility.
If one increases the SIP amount in the negative return period in a good mutual fund scheme, then when the market recovers, the overall return from the investment will be significantly higher and greater corpus will be accumulated.
Other benefits include, it takes off the pressure from the investors to time the investments. And secondly, it is highly beneficial in a declining market situation, driving maximum value.
As it seems, creating value from the market is very difficult, due to its unpredictable nature, but if we look at it differently with a systematic approach, its quite simple.
In fact, Warren Buffet has rightly summarized, how to be successful in investing with a single statement:
“Fearful when Others are Greedy and Greedy when Others are Fearful”
In investing, price is what you pay, and value is what you get. If you pay too high for a stock, then returns will not be as per your expectation. Because the intrinsic value of stocks is lower compared to their trading price.
You should act greedy, when others are fearful, to get the maximum returns from the investment. That’s why short term volatility might create some panic but helps in long term investing. Therefore, it is regarded as a smart weapon for long term wealth creation.