Future strategy for investors as part of a systematic investment plan
Sensex and Nifty have been on a stellar run since last week, and that continued on Monday. The Nifty hit its lifetime high on Monday afternoon, hitting 15,555.75 points. Analysts expect the indices to continue to perform well in the short term and maintain their positions. Since Nifty started their incredible run, some investors have been cautious about any market correction in the coming days. Those who have invested in SIPs are also a bit worried about whether they should continue investing or registering a profit now to reduce their exposure.
Most SIP investors or those who take the SIP route to invest in mutual funds are novice investors and do not have a thorough understanding of how the market works. So let’s first see what a SIP is and how it works before making a decision.
What is a SIP?
A systematic investment plan (SIP) is a popular way to invest in mutual funds for new investors who want to reduce their risk. This involves allocating a small, predetermined amount to invest in the market at regular intervals (usually monthly). Unlike a lump sum investment, SIP splits your investment into small amounts to be paid in overtime. Investing through a SIP helps you instill a sense of financial discipline.
How it works?
Each time you invest in a mutual fund via a SIP, you buy a certain number of fund units. You can actually profit from both bullish and bearish trends. When the market is down, buy more fund units. When it is finished, buy fewer units. Over time, the cost of purchase falls on average down. This is called the average cost in rupees.
Strategy to come
Since the market is currently bullish, most novice investors are wary of a possible correction in the near future. For SIP investors, market fluctuation should be a minor factor as theirs is a long-term investment. The SIP does its job regardless of short term gains or possible losses. There is no need to change your market strategy due to these short term fluctuations.
Consider this: Nifty is now above the 15,000 mark and could go down in a few months. But the index is almost certain to be at a much higher level five years from now. So the smart decision right now is to keep your SIP investment going, experts say.