The key to building wealth is to increase your assets gradually. However, the type of investment you select is determined by your risk tolerance. Investing in equity is a terrific option for a more aggressive view, but it strangely sabotages your peace of mind. Although FDs are relatively easy to work with, their slow growth puts snails to shame.
We should explore mutual funds since we require balance. Putting up a Systematic Investment Plan to regularly invest money in mutual funds is undoubtedly the most profitable approach to growing wealth and eventually a significant corpus. Mutual funds and sip investment plans, while their potential, aren’t enough to help you grow financially.
The impact of the turbulent market can be seen in all types of equity mutual funds. Small-cap funds fared the worst among diversified stock schemes, whereas Flexi-cap Funds, Large-cap Funds, and Mid-cap Funds fared better.
Due to several challenges, heightened instability in the equity market is projected to remain throughout the year. Is it time to sell your mutual funds, or should you increase your SIP contribution to take advantage of the lower costs?
How can SIPs work for you?
Increase amount: Your investment amount is determined by your income. Your SIP investments might be substantially lower at the start of your career. However, an increase, whether in an annual bonus or a promotion, can allow you to add to your existing SIP. A top-up SIP keeps your investment consolidated. It will enable you to gradually increase your SIP amount to build wealth faster.
Beat Inflation: Inflation may be a monster for your investments. That’s because the inflation rate continues to climb with each passing year, eroding the value of your money. As a result, you may wish to contribute a more significant sum to your long-term investment plan to keep up with inflation. In this case, a top-up SIP could be a great way to stay up with inflation. You might be able to keep up with the expense of living in the future if you increase your investment amount regularly.
Avoid Withdrawing Early: A financial crisis can strike at any time. You may choose to pause and withdraw your SIP investment to deal with these unforeseen events. Given the volatile nature of the market, exiting while the market is low will reduce the value of your portfolio. While systematic withdrawals might be an excellent way to augment your income, you should avoid doing so early in your investment career.
This should be done as you get closer to your financial goals and retirement age. Furthermore, if you choose to make systematic withdrawals, make sure you only withdraw the returns element of the investment and leave the principal piece intact so it can continue to generate returns for you.
Review Fund Performance: Every investor’s principal goal is to maximise their profits. As a result, keeping track of the fund’s performance in the market is critical. A negative performance graph puts you at greater risk and may sway your investment decision. You can take your money out of that mutual fund and put it into a better-performing mutual fund. Before selecting, look at the returns for at least a few years. Good asset managers can manage market volatility rather well to tackle temporary situations.
However, because volatility is inherent in the equity market, it is vital to remember that the market does not always bounce back quickly following a slump. Our investment performance is determined by how we exploit volatility in the market to our benefit, assess the situation rationally, and design an effective strategy.
SIP investing is the best strategy to ride out market volatility. If market volatility persists or the market corrects further from its current level, the rupee-cost averaging feature of SIPs will take care of the intermittent volatility; more units will be added during the equity markets’ corrective phase, and when the market resumes its upward trend, this strategy will composite your wealth.