Investing through SIPs across asset classes like Equity and Fixed Income helps you get the benefit of rupee cost averaging, which in the long run helps tackle the impact of market volatility on your portfolio.

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The pandemic and resultant lockdowns imposed to contain it, at both national and regional levels, have had a significant impact on financial markets which have witnessed a lot of volatility over the past year. This volatility has been noticed not just in Capital markets but also debt markets, which are traditionally considered to be a “secure and safe investment” compared to equities.

Last year, debt investors were in for a complete shock as markets slumped. The reason for this was simple. One never expected an investment in debt markets to give negative returns. In fact, investors have traditionally added debt to their portfolio for stability and diversification.

But, the Covid-19 crisis accelerated the changes that were already impacting the debt markets – with the global economy reporting lower growth and excess savings, unconventional monetary policies being unfolded and polarisation of geopolitics.

The speed and amount of fiscal stimulus and QE witnessed across the globe has resulted in an increase in balance sheet and liquidity boost. This has led to volatility in the Fixed Income market. At the current interest rates, even high-quality government bonds may yield lower returns.

Investing into a Systematic Investment Plan (SIP) can help you beat market fluctuations and at the same time offers the power of compounding on your earnings, making it an attractive avenue to inculcate the discipline of saving.

In a SIP, you can invest a fixed sum of money at regular intervals towards a fixed income savings scheme. For an average investor, timing the market to decide the right time to enter or exit and also the type of fixed income scheme that you want to put your money into is tough. In such a scenario, the right thing to do is decide on the type of scheme based on your risk appetite and invest through SIPs into Debt Mutual Funds,. These funds track various forces at play in the macro environment to take this decision on when to invest.

One of the other benefits offered by a SIP is rupee cost averaging. In simple terms, it means that when the Net Asset Value (NAV) is high, the fixed amount that you have allocated towards the SIP can buy lesser units of the investment as against times when the NAV is low. So, over time, the average cost of your holdings averages out as the number of installments increase over time giving you the opportunity to earn higher profits on the total amount thus invested.

A SIP is not a strain on the pocket. You can start a SIP with as little as Rs 500, and don’t necessarily need to set aside a lump sum amount to invest at one go. You can decide how much you want to invest, along with the frequency of the investment depending on your cash inflows offering a lot of flexibility.

Furthermore, you stand to gain from the power of compounding. As you remain invested for the long term, all the returns earned on the mutual fund holdings are reinvested into the same scheme to buy more units. So, your profits are getting reinvested to help you earn increased returns.

An investment into fixed income is also considered to be traditionally secure, compared to stock markets. Ideally, the rate of return on your investment must beat the existing inflation rate. It gives you a diversified portfolio that reduces the risk of volatility in other investments you may have in the stock markets.

SIPs offer flexibility, which is an essential feature in these testing times. Even though it is recommended to keep investing into a SIP at the time when your instalment is due, a SIP offers the advantage of skipping a payment or two when you need the money for any other exigency. You also have the option to stop the SIP at any time since they do not have a lock-in period like many other investments.

Disclaimer: An Investor Education Initiative by Mirae Asset Mutual Fund

For information on one-time KYC (Know Your Customer) process, Registered Mutual Funds and procedure to lodge a complaint, refer to the knowledge center section available on the website of Mirae Asset Mutual Fund

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.


IE Disclaimer

An investor education initiative by Mirae Asset Mutual Fund.

For information KYC process, Registered Mutual Funds and the procedure to lodge a complaint, refer knowledge centre section available on the website of Mirae Asset Mutal Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.