The ongoing coronavirus global pandemic has taken the entire world by shock. This virus has claimed a record number of lives across the world. The impact of this pandemic has also affected the financial health of world economies. Markets across the world have been consistently underperforming. This has led to several investors worrying about their investments. It is a time to worry. Investors cannot be blamed for withdrawing their investments. They fear that the fluctuating markets may completely ruin their portfolio’s performance. However, some seasoned investors who have come across similar market turmoil in the past have actually seen this as an opportunity and invested even more over the past four to five months. But why would someone do that? When the stocks are bleeding and your existing portfolio is already incurring losses, why invest more and invite unwanted trouble?
As per some mutual fund experts when the markets are low, it is actually a good time to invest. That’s because equity markets have always done well over the long term. The best way to make the most out of your mutual fund investments is to start a Systematic Investment Plan.
What is Systematic Investment Plan?
A Systematic Investment Plan or SIP allows investors to invest small fixed amounts at regular intervals (usually every month). All you have to do is complete a one time mandate with your bank and you can start investing in mutual funds from the comfort of your home or your laptop or even smartphone. Once you choose to invest in mutual funds via SIP, every month on a predetermined date, a fixed amount is debited from your savings account and electronically transferred to the fund.
Here is why investors should not stop their SIP investment during COVID-19 crisis:
Long term investments are ideal for anyone who wants to build a wealthy corpus in the long run. A systematic investment plan gives investors the liberty to invest small investment amounts at regular intervals. If you continue investing in mutual funds over the long term via Systematic Investment Plan your investments might even stand a chance of beating inflation. The ongoing coronavirus pandemic has already caused a negative effect on your investment portfolio. At this time if you withdraw your mutual fund investments you may not even receive the principal amount that you invested. On the other hand, a long term investment has the potential to beat inflation. A systematic investment plan can also help investors benefit from compounding. In mutual funds, compounding refers to interest earned on interest earned from the principal amount. If one continues to invest in mutual funds via SIP over the long term then their small investment amounts can turn into a large corpus. Investing in mutual funds via SIP may inculcate the discipline of investing regularly. The worst thing for an investor to do at this point of time is to panic and remove their money because the markets are underperforming.
Those who invest in mutual funds via SIP generally succeed in meeting their long term goals like retirement planning, building a wedding corpus for their daughter’s destination wedding, going on a world tour with their partner after retirement or building wealth to financially secure their child’s future. Investors can also refer to an online SIP calculator to get a better understanding of how much money they need to invest at regular intervals in order to get closer to their ultimate financial goal. Having said that one should also bear in mind that mutual funds like equity funds carry a high risk profile. Mutual funds do not guarantee returns. Hence, investors should determine risk appetite before investing in them.