The economic indicators are showing a prolonged slowdown in the economy. If we measure the growth of last quarter’s GDP that fell to 5% with the growth rate of the previous quarter which was slightly higher at 5.8%, we can easily see the difference. There is no doubt in saying that the Indian economy is facing a storm at this moment based on several different factors which makes the recovery more difficult. If we look at the reasons for this economic crisis then there are multiple things that people are saying starting from demonetization to several other factors.
In this era, where we are witnessing the closings of the bank, blunders stories, jobless people, market slows down and much more – a question that arises is about the existing investments. What about that? What will happen to our life insurance and health insurance? And the tension is more when it comes to mutual funds that are completely subjected to market risk.
As per the mutual fund advisors, the current scenario of the market has scared many mutual funds investors and taken them away from the equity mutual fund’s plans, especially those who started investing in the same a few years back. As these investors have not faced a scary volatile market in the past, they are taking the advisor’s assistance. Investors are asking, should they stop their Systematic Investment Plan (SIP) now and restart the same when the market stabilizes.
There is no doubt in saying that mutual funds are risky. It is referred to be a risky investment with huge returns. At this moment people might not feel good to remain invested in direct mutual funds seeing the market-slow down. And up to an extent, it is true that direct mutual funds would not be a safe option for investment at this moment when the status of funds is falling regularly. However, the case is completely different when it comes to investing in mutual funds through long term SIPs.
Should you continue to invest?
Experts and the financial analyst will always suggest you remain invested with mutual funds through SIPs. SIPs are a long term investment option and its growth story looks intact. Whereas the near-term investment options do not look favorable because of some volatility and outflow of the market. It seems to be an appropriate time for equity investors to build and grow.
Investors should continue to invest with long term SIPs as it is offering more units for the same funds. With the lump sum amount that you invest regularly, you will get more value during this time. Moreover, it will not be a bad idea for new investors as well to start investing in mutual funds through SIPs. A person must stick to asset allocation. A new investor can easily maintain a 65:35 ratio between large and mid-cap for the equity investment. Under the same, the large-cap will take care of the stability part whereas mid-cap will assist with the return of the overall portfolio.
Talking about the debt market, there has been a notable rally and the money market has gone down. Moreover, as per a recent study, the 10-year government bond yield has fallen 11.02% since January and 6.3% since June. This is what usually happens. In a low inflationary and low growth period, debt funds investments perform well. The reason behind the same is that people look for safe investments.
You should buy more units during this period when the market is down and you invest fewer units when the market is on an upward march. It will help you to average the purchase cost and amass more units over a long tenure. It will help you with maximized wealth in the long run.
In simple terms, you should not commit the mistake of stopping your investment in SIP when the market is facing a rough phase. Don’t forget that this is the time when you have the chance to buy units at a cheap price and can maximize your returns over a long period.