Riding the market waves: Why SIPs thrive in volatile times

The nature of stock markets is very dynamic, it changes constantly, at a very fast pace from time to time. Due to this nature, investors keep anticipating a ‘perfect’ time to invest that may never arrive. When market volatility hits, behavioural biases can take the best of the investors, ultimately resulting in them making irrational decisions. Moreover, market volatility gives birth to behavioural biases that can make some investors greedy and others too risk averse, which can further impact their decision-making ability.

Rather than timing the market and being caught in a cycle of hesitation, investors should follow a more consistent and disciplined way of investing. A systematic plan (SIP) in mutual funds allows investors to eliminate the need to time the market or wait for a ‘perfect’ moment to invest in the market. With an SIP in mutual funds, investors can invest a fixed amount of money at regular intervals. Let’s look at some reasons why SIPs are resilient during periods of high market volatility.
Rupee cost averaging — With systematic investment plans, investors can average out their cost of investment. Due to this, investors can purchase more units when the prices are low and fewer units when the prices are high, ultimately averaging out the total cost of investment. This can help investors mitigate market volatility and emerge as successful investors. Let’s look at this with the help of the tables below —

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From the table above, it can be inferred that when the NAV is high, fewer units are