timing the market. This is the reason why a myriad of investors seek to perfect the timing in a bid to maximise their returns in unpredictable market cycles. Moreover, investors also believe that the same strategy applies to systematic investment plans (SIPs).
Therefore, the elusive goal here remains to consistently predict the top or bottom of the market precisely, making this endeavour challenging for investors. The SIPs, however, are all about disciplined investing, where an investor chooses an amount, frequency, or time period and consistently invests in their choice of mutual funds. Therefore, engaging in SIPs eliminates the requirement of timing the markets accurately.
Let us delve deeper into this aspect. The beauty of SIP lies in its ability to allow an investor to not “time" the market. An investor can achieve several benefits from this systematic investment in the long term, regardless of the short-term fluctuations.
In fact, SIPs work best in the volatile market due to benefits such as rupee cost averaging, compounding, and hassle-free investments. The term rupee cost averaging means that with an unchanging amount of investment on a regular basis, one can average the cost of their purchase. SIPs usually allocate a fixed amount to a scheme, and the investor receives units against the net asset value (NAV).
When the markets are high, one buys fewer units of the mutual funds via SIP. On the other hand, when the markets are down, an investor purchases more units for the same amount. Therefore, this enables one to average their costs during market volatility, and the overall cost of acquisition is reduced.
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