SIP is the best way to invest in stock market

K. ARAVIND

What is the reason behind investors making significant investments in the stock market through Systematic Investment Plan (SIP)? The changed climate is the reason why even investors, who in the past turned their backs on the stock market and mutual funds and did not even try to understand what SIP is, are keen to start such investments.

The question now before investors is where to invest other than the stock market. No other investment option offers attractive returns. As the interest rates on bank fixed deposits have come down significantly, investors have come to realise that the return on investment through interest rates is negligible. The attitude of a section of those who had earlier invested in bank fixed deposits and small savings schemes for the sole reason of risk free has changed. Mutual funds bring SIPs to such investors looking for alternatives to risk-free but low-return investment avenues.

Retail investors are hopeful that the stock market’s remarkable progress made in recent years will be repeated in the coming years. Equity mutual funds have provided impressive gains over the years. Investors are therefore governed by the conviction that it is better to make regular investments on a monthly basis, without delay, in order to continue to reap these benefits.

The attractiveness of this investment method has been enhanced by the widespread awareness among investors that investors through SIPs need not fear even a correction in the stock market. The biggest feature is that those who invest through SIP do not have to wait for an opportunity like those who invest together.

Although SIP is a way for investors to follow in any market climate, in the past, investors have made adjustments in their SIP investments in line with market fluctuations. Investing in mutual funds has been predictable in the past. The trend in the past has been to increase investment in equity funds as the market rises and to reduce it as the market adjusts. This is because investors have made decisions based on the short-term performance of the market. If the return over the last one year or six months is good, the investment in equity funds will increase, otherwise the investment will decrease – this was the situation earlier.

But now the response of investors to market fluctuations is quite different. It is now seen that investors continue to invest through SIPs and make more investments every month, regardless of the market correction. This growing trend of investing in equity funds has also led to large stocks becoming more expensive.