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Sometimes bad is good
Published On , 16 Oct 2019 By TT Connect
The financial market does not move up in a linear fashion. It is volatile, and it goes up and down. So, if you sell your Funds at the first hint of a market downturn, you could end up making a loss. In other words, you are not utilising the market downfall in the best way possible.
As Warren Buffett once said: Be fearful when others are greedy and greedy when others are fearful.
Ideally, the best way to maximise your returns is to sell at market ‘peaks’ and buy at market ‘lows’. But it is not possible to consistently guess the peaks and lows. So how about avoiding the guessing game altogether.
This is possible by investing regularly in Mutual Funds through Systematic Investment Plans (SIPs). Here, you just need to invest a fixed amount of money each month in a Fund of your choice. When the Fund value rises, the Net Asset Value (NAV) of your fund increases. And when the Fund value falls, you can purchase more units of the Fund at the same price. This is known as Rupee Cost Averaging (RCA).
In the long term, this strategy averages the cost of investing and ensures that you don’t have to time the market. In other words, a market downturn can also have a positive outcome.
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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