Why Market Downturns Could Be Good News for Your SIP Investments

Sudden market downturns can cause anxiety to any investor - after all, who wants a loss of their invested capital? But for SIP investors, a bear market can be a golden opportunity. 

When you have a good mutual fund SIP in place, you can leverage market volatility and accumulate more units because of their low prices, ultimately giving you higher returns in the long term. 

As experienced investment advisors would tell you, downturns should not be feared but embraced as an opportunity to build systematically in the long run. 

Investment is more like a marathon than a sprint, requiring patience and persistence. When your goals are long-term, you, as an investor, must demonstrate these qualities for the market to reward you. 

Benefits of SIP in Market Volatility

A Systematic Investment Plan (SIP) is a specific way of investing in mutual funds. In an SIP, you invest a pre-defined amount regardless of market fluctuations.

This disciplined approach avoids market timing, which even experienced investors find difficult to gauge. Instead, SIPs take advantage of the concept of rupee cost averaging and compounding, and they both favor you, particularly when the markets are falling.

Yes, you heard that right. Declining markets may be beneficial for your SIP investments. Here's how:

1. Rupee Cost Averaging Works Best When Markets Decline

Rupee cost averaging lets you purchase more mutual fund units when prices are low and fewer units when prices are high. This reduces your average price per unit over time. In a down market, the Net Asset Value (NAV) of mutual funds decreases, i.e., your SIP amount purchases more units.

For instance, if you invest ₹10,000 per month and the NAV falls from ₹50 to ₹40, you will buy 250 units rather than 200. When the market recovers, and NAVs go up again, the units that you bought at cheap rates will give you higher returns.

2. Compounding Rewards Returns

Compounding is the process where your investment returns start generating returns of their own. The longer your money remains invested, the more powerful the compounding effect.

Suppose you put in ₹10,000 a month in an SIP that earns an average rate of return of 12%. In 15 years, your overall investment of ₹18 lakhs can go up to more than ₹50 lakhs through compounding. Even in temporary market downturns, remaining invested means you will not miss the long-term benefit of compounding.

3. No Need to Time the Market

Trying to guess market highs and lows leads to bad decisions. SIPs eliminate uncertainty. You invest at regular intervals, whether the market is high or low. This discipline avoids emotional decisions and builds wealth.

This is the reason why Registered Investment Advisors in India suggest SIPs as an anchor investment approach for clients looking to build wealth over time.

4. Downturns Set the Stage for Greater Gains Later

Market corrections are temporary. History indicates that markets come back stronger after declines. For instance:

• Following the 2008 financial crisis, Nifty 50 doubled in the subsequent 18 months.
• During March 2020's COVID-19 crash, Sensex dipped below 26,000 but hit 60,000 in merely 18 months.

Investors who persisted with their SIPs during these times reaped outstanding returns as the market bounced back. By buying more units at lower NAVs in a downturn, they were well-placed to gain when the NAVs skyrocketed.

5. Emotional Investing Can Lead to Expensive Errors

During turbulent times fear makes investors stop or suspend SIPs. But this response locks in losses and denies the advantage of buying at low prices. SIPs are meant to counter this emotional bias by making investments automatically maintain your strategy irrespective of headlines.

This is where Investment Advisors become important. They assist investors in remaining committed to long-term objectives and not getting influenced by short-term noise.

Why You Should Consult an Investment Advisor ?

Although SIPs make investing easy, choosing the right mutual funds is not an easy task. A Registered Investment Advisor can assist you:

• Diversify between equity, debt, and hybrid funds depending on your market outlook and your risk appetite.
• Align SIPs with particular financial objectives such as retirement, education for a child, or buying a house.
• Assess your risk tolerance and suggest funds that are suitable for your investment horizon.

Whether you are conservative or aggressive investor, using services of experienced Investment Advisors makes your SIP journey hassle free.

Conclusion

Market downturns may look scary but are golden opportunities for disciplined SIP investors. By persevering with your investments during bear periods, you get more units at lower prices, which puts you in a better position to make higher gains when the market bounces back. Instead of acting on emotions, stay on the course and take the advice of a professional Investment Advisor in India.

So the next time the markets fall, don't panic. Your SIP is working harder than ever to create your future wealth.