Ride Market Volatility With Stock SIP
- Can be initiated with a predefined sum or quantity of Shares
- Makes you a disciplined investor
- Stops you from timing the market
- Steadily helps in building a meaningful corpus
- Helps to better tackle volatility by capturing both the highs and lows of the market
- Helps you balance risk by rupee cost averaging
Investing in equities is inevitable today for investors who are looking for inflation-beating returns.
But given equity’s notoriety for bouts of interim volatility, the key dilemma playing out in the minds of most of us these days is: should I wait, or should I take the plunge? The simple answer to this complex dilemma is to avoid going all in at one go. Having a systematic approach can help you turn market volatility in your favour.
You may have heard of systematic investment plans (SIP) in mutual funds, but the SIP route is available in direct stocks too.
You can invest in direct equity or the shares of your choice though SIPs. Several brokerage houses offer this option on their platforms, though they may have different names.
For instance, ICICI Direct offers this option through Systematic Equity Plan (SEP). With SEP, you can invest a pre-specified sum of money or buy a pre-specified quantity of shares in a consistent manner. Let’s put it simply: If want to buy a stock worth Rs 5,000 on a monthly basis, you can do by selecting the pre-specified sum of money or you can choose the quantity of your choice, say, 15, 20 or 30 shares per month, week, or the period that you find suitable.
This will help you automate your equity investments. You just need to select the stock, the frequency, the duration of SEPs, the commencement date and the rest shall be done by your brokerage platform.
Sail Through Volatility
Equities have known to outperform every other asset class in the long run, and it won’t be wise to miss investing in equities simply because it tends to be volatile in the interim. While the volatility of the equity markets can neither be predicted nor be tamed, a disciplined and systematic approach to invest in equities, through SIP, can surely help one sail through the equity market without worrying about the high and the low tides.
Make Every Rupee Count
By investing through stock SIPs you will avoid any temptation to capture the highs and lows of the stock price. Moreover, following this disciplined investment approach will average out your cost over a period of time. This is the most effective way to invest in equity, especially during volatile times that we are currently witnessing.
In fact, apart from shielding you from the biggest risk of equity investing, which is timing the equity market, Equity SIP also gives you the freedom from tracking the stock market on a regular basis. This leaves you with ample time to hone your skills at your respective jobs or do the things of your choice.
Makes Market Timing Irrelevant
None of us would like to lose money and so we often try to get our timing (to invest in equity market) right. But what’s a good time? Stock markets are notorious for their volatile nature and so there is no such time as a good time to invest in equities. If you are investing for the long term, any time is a good time. In fact, long-term investors need not bother about daily or weekly market movements as the returns get averaged out in the long run even if they decline drastically or jump significantly in the interim.
Lighter On The Wallet
The other fascinating beauty of SIPs is that it can help you accumulate a meaningful corpus over the years, without pinching your pocket. Let’s assume you start with buying 10 units of Tata Consultancy Services on a monthly basis and assume the share price grows at 15 per cent per annum. In 10 years, you can accumulate a wealth of Rs 91.62 lakh, according to data provided by the ICICI Direct calculator.
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