If you are worried about market volatility crashing your investments in the market, then make a smart move and invest in Systematic Investment Plans or SIPs. These instruments are regarded as the oldest and most popular tool in the fight against the volatility of the market, offering respite to the investor by making investments in random time slots, which offer a good average price to the investor. With fund houses sophisticating their Systematic Investment Plans so as to fine tune them to the needs of investors, investors now have the freedom to make investments on a weekly or even a daily basis. You also enjoy the independence to select the index level, at which you want to make an investment.
Systematic Transfer Plans or STPs are a safe bet to combat the volatility of markets, for those investors who seek to invest a lump-sum amount of funds in an investment. In such a scenario, it is advisable to invest your funds in a debt fund, and then begin an STP in an equity fund scheme, at different intervals of your choice, varying from weekly, monthly, or quarterly plans. In order to make an investment in STPs, it is mandatory for investors to invest a minimal amount of funds in the debt fund. This amount may vary from fund house to fund house, as per the policy of the organization. Flexible SIPs, a relatively new innovation in the market, enables an investor to fluctuate his SIP amount, according to the market level. Thus, the investor invests more money when stock prices plummet, and can hold back funds when the index rises. Although this option is provided by only a few fund houses in the country, one can make investments in these instruments through several online intermediaries. The trigger option offered by mutual funds is also an interesting tool that enables investors to decide their desirable levels of profits, and withdraw from the market immediately, once their target has been met. In case the market rises above such a specified level, the investor enjoys the flexibility of selling his equity units and transferring the funds to a debt scheme.
With weekly and daily SIPs, investors have the option of spreading their investments across a period of one month. Several analysts however, believe that the daily option of SIPs and STPs are not a good option as they do not reveal any meaningful insight into their purpose. Fund houses are also apprehensive in offering this service to investors as it doubles their work-load and cost, providing results that aren’t as effective as compared to monthly SIPs or STPs. Financial planners also have complaints with respect to this tool as it increases their work load, thereby leading to a delay in the filing of returns and booking profits. Thus, weekly SIPs are a better option as their volatility can be controlled and calculating them does not offer any major hindrance, in spite of the huge paper work involved.
But make sure you get the complete market information about the kind of funds you are investing with the help of a financial advisor if you are a first time investor. You do not want to be losing out on your savings and consider opting for debt like a personal loan, home loan etc, in the eventuality of a market downturn. Ensure that you invest in those funds that have been consistent performers and most importantly, those funds that match your objectives for investment. There is no point in investing in those funds that allocate your money into aggressively performing stocks while you are a risk averse investor.