Finance

Invest in mutual funds when the markets are underperforming. Here’s Why

The future is uncertain, but one thing is certain, you can become wealthy and financially stable if you start investing at an early stage in your life. The earlier you start, the better it is because you have more years in hand to achieve the desired corpus. It is almost impossible to become wealthy overnight. If you really want to let the money do the hard work for you, invest it for the long term. If you have any specific goals in mind, you might be able to invest consistently till your investment objective is achieved. Goal based investing never fails because you wouldn’t want to give up on your dream of buying that luxury car your always wanted or not get married because you didn’t have enough wedding corpus.

If you too are unhappy with your existing wealth and are keen on becoming rich through systematic and regular investing, consider investing in mutual funds. Several investors are now switching from conservative schemes to mutual funds because these market linked schemes are known for their high risk rewards ratio. Mutual funds are an investment vehicle for pooling from investors sharing a common investment objective. What fund houses do is that they collect money from investors sharing a common investment objective and invest this pool of funds across the Indian and foreign economy. Depending on the nature of the scheme and its investment objective, a mutual fund may invest across various asset classes and money market instruments.

Start a SIP in mutual funds

Back in the day, the only option for investing in mutual funds was by making a onetime lumpsum investment. The only drawback of lumpsum investing is that if you are investing in equity mutual funds, you end up exposing your entire investment amount to market vagaries. Also, not everyone might have a large capital at their disposal to invest in mutual funds. Ever since the introduction of SIP, investing in mutual funds has become simpler and convenient. You don’t need a large capital to start investing in mutual funds. With SIP, you can start investing with an amount as low as Rs. 500 per month. A Systematic Investment Plan is an ideal way to gradually build your mutual fund corpus and accumulate wealth.

Why is it ideal to continue investing even when markets are underperforming?

If you are investing in mutual funds via SIP, you do not have to worry about the market’s existing condition. Also, the beauty about SIP investments is that you can invest in mutual funds the comfort of your home or office using a laptop or a smartphone with a decent internet connection. The SIP amount that you invest every month remains stagnant. However, the mutual fund units that are allotted to you fluctuate depending on the scheme’s NAV (net asset value). For example, when markets are underperforming, this might bring down the fund’s NAV. However, when the NAV is low more units will be allotted. Similarly, when the NAV of the fund is high, lesser units are allotted. This allotment of units depending on the fluctuating NAV is referred to as rupee cost averaging. With this, we can also decipher that when the markets are low and underperforming, more units are allotted to your mutual fund portfolio, thus allowing the investor to benefit from falling markets.

Also, if you keep a long term investment horizon, you may not have to worry about the underperforming markets. Over the long term, markets have always recovered and helped investors achieve capital appreciation.

If you are planning on investing in mutual funds, make sure to consult your financial advisor before investing.

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