SIPs: The good news in bad times
Updated: Jun 8, 2020
The COVID-19 pandemic has brought insecurity, uncertainty and unfortunately with it a rocky economy. This a global health scare whose economic repercussions are also evident in the markets across the globe. But don’t panic. While none of us knows when this time shall end, we do know that our SIPs are made for specific long-term goals!
So before you panic and stop those SIPs, let me bring you some bright news in these gloomy days. This is the time to actually enjoy the “rupee-cost averaging” which you might have frequently heard from financial advisors.
In simple words, the discipline of investing at the same time every month, month after month in a SIP ensures we are disciplined – sometimes we will buy when the prices are high, and sometimes we will buy when the price is low. Hence, over a period of time, the cost will average out.
Look at it as a 50 per cent sale on your favourite store, say, Zara. A top which cost you ₹ 2000 before the sale, is now available at ₹ 1000. What will you do? Walk out of the store wondering whether this sale is authentic or, in fact, buy two tops with your original budget of ₹ 2000?
Similarly, at the same budget (or SIP amount), your mutual funds' portfolio would be getting more units than before.
Let’s simplify this with an example:
Meera has a monthly SIP of ₹10,000 in one of the diversified funds - ICICI Bluechip fund
Her goal for this investment is linked to her child’s education fund– required seven years later.
Below is the table showing the number of units she received each month for her investment.
In April, due to the drop in price per unit, for the same ₹ 10,000, she accumulated more units! More units mean more earning when the market recovers. This means, at a time like now, where panic prevails, we must focus harder on the goals of our investments.
Some points to know about SIPs in the current market are:
The current situation is temporary, for the whole world, including financial markets.
Your SIPs are actually buying you more units at the same cost.
Any loss you are experiencing will be made up when markets are better for your long term goals.
Feeling anxious about the current market situation is evident; however, we need to put to use our traits of patience and consistency.
Don’t look at this ‘temporary’ drop-in the portfolio as a red signal. It could be an opportunity to prepare better for your long-term goals. Stay safe, stay indoors and invest with discipline.
Looking to start investing your savings for a rainy day fund? Get fund recommendations with Basis.