SIP

Don’t stop SIP despite Market Volatility

Don’t stop SIP despite Market Volatility

SYSTEMATIC INVESTMENT PLAN
We recently saw a news that mutual funds AUM fell by 21000 crores in February and falling markets being the main reason for the outflow. Yes, we have a falling and volatile market now but does it mean that you should stop SIP? let us see in detail why you shouldn’t stop an SIP in volatile market.

Humans are closely associated by behavioral biases and most of our decisions are based on this kind of biases. For example Indian cricket team has toured several times to South Africa but they have never won a test series recently. If India tour next time irrespective of Indian teams form we would most likely think that South Africa would win the series. This is called recency bias, where we mostly rely on recent happenings and deciding based on that. Similarly everyone thought Kohli and co will fail in ODI series in South Africa after losing the test series but finally India won the ODI series first time in South Africa beating the recency bias of several analysts.

This is a bias, several investors are affected by. Yes markets are choppy and volatile, just because it’s falling today we shouldn’t think that this fall is going to be permanent and stop your SIP investment. The main reason is to do an SIP is rupee cost averaging where you get to buy mutual funds when market is high as well as low and when once downturn ends and markets move up you get more returns.

Ok, I think you are still not convinced?. Yes it’s still the recency bias that is not allowing you to hear the truth. Let us go to a real-life example.

This happened in the year 2007, there were 2 friends Aakash and Deepak, they both wanted to accumulate money for their wedding expense. So they started an SIP of 5000 per month for 7 years. Aakash did not mind anything about the markets irrespective of either it was going up or down as his goal was long term. On the other hand Deepak stopped SIP in March 2008 and rejoined again in April 2011 once markets became stabilized according to him. However he invested the amount that he missed in SIP as lump sum when he rejoined and withdrew their money on April 2014. Let us see what was the corpus both of them made.

Do you wonder how Aakash got more corpus?, this is because he was investing during downtime where he was able to get more units for the same SIP amount. Whereas Sandeep was out of the market during downtime and did not gain as much as Aakash in rupee cost averaging.

SIP is a mode that keeps emotions away from investing for long-term wealth creation. As they say in sports “Form is temporary, class is permanent” applicable for equity investing as well, the volatility is temporary whereas growth is permanent. In turn the volatility is our friend that helps us to generate more wealth as we get more units during downtime.

Hence we recommend you not only to continue your Sip in volatile market but also to invest some lump sum amount during down times that would give you extra benefit over long-term wealth creation.

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Financial Year 2018-19

Things You Should Do In New Financial year 2018-19

After a successful completion of FY-2017-18 we are stepping into new financial year, here is a set of guidelines that we recommend for FY 2018 -19.

Don’t stop SIP

Ever since Finance minister announce LTCG, the markets started becoming volatile and shaved around 10% gains from its all-time high. As a long-term investor you should never worry about these short-term downfalls. You should take these as an opportunity to invest more in lump sum apart from your regular SIPs in order to take the due advantage of rupee – cost averaging. Hence never stop your SIP’s due to this short-term volatility.

Review your Investments in New Financial Year
We invest for our goals, irrespective of its short term or long term. Hence in order to achieve our goals we need to periodically assess if we are on the right track or not. Hence we strongly recommend you to assess your portfolio and see where you are with respect to your goal. If you feel you are very near to your goal you can rebalance it by increasing the debt portion and decreasing the equity allocation so that you are not exposed more to market risk while achieving your goal. If you are very far away from your goal and have adequate risk capacity and tolerance we recommend you to bet more on equities.  If you are still having difficulty in visualizing your goals and asset allocation to achieve the goals you can take the help of financial advisors.

At WealthTrust advisory we offer you the best in class advisory services with our unique blend of data analytics and human intelligence. Also our platform is very simple to on board with very few clicks. You can also track your entire family’s portfolio on our platform. Read more about our advisory services here.

Plan your taxes

We saw several of you asking us for investing in ELSS funds during late March, especially post-march 29th which made it impossible for investing in ELSS funds for FY 2018-19. In order to avoid last minute hassles like this we recommend you to start investing early in ELSS funds (for your equity portion of asset allocation) right from day 1 through SIP route. We recommend you to read more on disciplined way of investing here.

Term Insurance
There are several of us who are victims of Mis-buying; one such mis-buying that was injected into Indian mentality is buying endowment Insurance plans for savings. If you just analyze the returns that you would be getting, it would be very meager at the same time sum insured would also be very less. Life insurance is extremely important for your family, in an event of uncertainty to your life your family should not be left stranded. As a head of the family you should protect your family’s future in the right way without becoming a prey for misselling.  Hence we recommend you to take a Term life insurance for a sum insured of at least 8 – 10 times your current annual salary. Click here to read about Critical things to keep in mind while buying term insurance plan.

For Salaried People

We often dream about big vacations, better bike or car, a better home etc., instead of buying them on EMI’s and becoming liable to banks, it would be more prudent to restrict yourself and live a frugal life and invest money in SIP (in equity mutual funds) and buy all your dream home, car or bike or vacation etc. with the corpus at a better price without any risk. Read more about SIP VS EMI here.

Also, whenever you get a hike or bonus invest a part of them rather spending them on liabilities. Always opt for step up SIP’s which increases the SIP amount annually as per pre-determined criteria. This will add more discipline to your investment methodology.

Income Tax
For individuals the last date to file your IT returns is 31st July. Hence we recommend you to file before due date as you may lose certain benefits such as

You cannot file revised returns if you file your original returns after due date.
You cannot carry forward your losses (except loss on housing property)
You will not get full interest for advance tax paid if you are eligible for return. If you have filed return before July 31st interest will be calculated from April 1st, if a late return if filed after due date the interest will be calculated only from date of filing.
Hence don’t forget to file your IT returns by 31st July.

Finally we would like to thank you one and all for trusting us; it’s your trust and faith on us that motivates us to work innovatively for you daily. We shall continue to deliver best in class service for you every time. We always constantly evaluate us to overcome any shortcomings, at the same time we also request you to bring any shortcomings that you see to our notice to serve you better. Once again we sincerely thank you for your patronage and looking for a great FY 2018-19 with you all.

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