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Advantages of SIP investments in volatile markets

What is a Systematic Investment Plan?

SIP or systematic investment plan allows you to invest a fixed amount each month into the mutual fund schemes of your choice. While the most common form of SIPs is via monthly payments, there are also weekly, or quarterly SIP frequencies available. SIPs work by automatically investing a pre-decided amount on a fixed date every month into a certain scheme. The benefit of SIPs is that they allow investors to start small with an aim to accumulate capital over time without too much hassle.

Globally, markets may underperform for the next few months due to the wide-spread panic caused by the COVID-19 pandemic. With the ongoing pandemic, many investors may choose to cash out of their investments and shift towards non-market linked financial tools. India’s economic prospects for 2020 also appear to be challenged by the pandemic hitting the nation. However, is market volatility the ideal time to discontinue one’s SIPs?

Advantages of SIPs during Market Volatility

If you have invested via a SIP in a mutual fund scheme that is aligned with your financial goals, then you do not have much to worry about during a financial crisis. SIPs could make volatility work in your favour. Here’s how:

​​1. Rupee Cost Averaging:

Foremostly, they offer the adv​antage of rupee cost averaging. This means that with an unchanging amount of investment on a regular basis in a mutual fund, you can average out the cost of your purchase. The benefit of rupee cost averaging is that when markets are at a low, you have more units. Once the market performs well, you have fewer units.

SIP investments allocate a fixed amount to a scheme. Units are received against the Net Asset Value (NAV) of the scheme. The NAV of mutual funds remain​s low during such lower markets. Investors should consider remaining invested in their funds as more units could be purchased when the market is underperforming. Lower markets can also be viewed as an opportunity rather than a setback. Additionally, investors can choose to start new SIPs during the low phase as this can help them get better value . By averaging out your cost during market volatility, SIPs aim to reduce the overall cost of acquisition. Hence, SIPs could help achieve the thumb rule of markets which is to buy less when markets are high and buy more when markets are low.

2. Compounding Benefits

By remaining active over a long period of time through cycles of market volatility, SIP investments harness the power of compounding. Even an amount as small as ₹5000 per month can amass a sizeable corpus after a few years’ time. This is known as the compounding effect. For instance, if you invest ₹5000 using a SIP investment every month in a scheme with a conservative 8% annual return, you will amass ~₹30 lakhs in 20 years' time. In case you are lucky enough to receive a more generous annual return of 11% then you will amass ~₹60 lakhs in 20 years.

Please Note: The above figures are used only as an example for illustration purposes. The Actual performance or returns may vary.

3. Hassle-Free Investments

With compounding and averaging on its side, a SIP makes for a great investment option for beginners without much knowledge on market conditions. However, there is a third advantage that SIPs offer investors. They are hassle-free. SIPs require little to no trouble to set up. By investing a fixed amount each month, investors learn the patience and discipline of time-bound investments. They do not need to initiate investments manually as SIPs are linked to one’s bank account.

By virtue of being automatic, SIPs are set up to make for convenient long-term investments that go through repetitive cycles of volatility. They are accessible to more people, including those who do not have knowledge about trading. Investors do not require a Demat account to invest in mutual funds via a SIP. Hence, an SIP is an extremely convenient investment option. Unlike traders scrambling to sell their securities during volatile conditions, mutual fund investors can sit back and relax as their investments could weather the current market conditions.

Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under ‘Intermediaries/ Market Infrastructure Institutions’. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit www.nipponindiamf.com/Investor_Education/pages/what-to-know-when-investing.aspx. This is an investor education and awareness initiative by Nippon India Mutual Fund.

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Disclaimer:
This is an investor education and awareness initiative by Nippon India Mutual Fund.
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Language Disclaimer:
While utmost care has been taken in translating the article into respective regional language(s), in case of any confusion or difference of opinion, article available in English language should be deemed as final. The article provided herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional advice for the readers. The document has been prepared on the basis of publicly available data/ information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of loss of profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this article. "ABOVE ILLUSTRATIONS ARE ONLY FOR UNDERSTANDING, IT IS NOT DIRECTLY OR INDIRECTLY RELATED TO THE PERFORMANCE OF ANY SCHEME OF NIMF. THE VIEWS EXPRESSED HEREIN CONSTITUTE ONLY THE OPINIONS AND DO NOT CONSTITUTE ANY GUIDELINES OR RECOMMENDATION ON ANY COURSE OF ACTION TO BE FOLLOWED BY THE READER. THIS INFORMATION IS MEANT FOR GENERAL READING PURPOSES ONLY AND IS NOT MEANT TO SERVE AS A PROFESSIONAL GUIDE FOR THE READERS."

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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