How to deal with market volatility in an SIP investment?

As an investor, market volatility is something you cannot ignore. It can cause your investments to fluctuate in value and, in some cases, even result in significant losses. But should it be a reason to avoid investing altogether? Certainly not! 

Most investors prefer asystematic investment plan (SIP) to invest in mutual funds due to various benefits it offers, such as disciplined investing, long-term wealth creation, automated payments to eliminate market timing, and rupee cost averaging. However, investing in SIPs does not mean you will be entirely immune to market volatility.

So, how do you manage market volatility in SIP investments? Should you panic and sell off your SIP investments to avoid further losses? Or should you stay invested and remain optimistic? To make things easier, here are some important strategies that can help you stay focused and remain in control during volatile markets. 

    • Invest regularly but don’t panic sell when markets fall

Most investors withdraw from investments during volatile times, but this is often not wise because markets tend to recover eventually. So instead of selling off prematurely during market volatility, consider staying invested until markets stabilise.

Investing regularly through SIPs also allows investors to take advantage of rupee cost averaging, which helps them buy more units when markets fall and fewer units when markets rise, ultimately helping them minimise their losses during volatile times.  

  • Increase your SIP investment amount or step up your SIP

If the market fluctuations cause your investment value to decrease, increasing your SIP investment amount will help offset the losses by allowing you to buy more units at a lower cost and benefit from any future market growth when market recovers. However, it’s important not to overextend yourself when increasing SIP investments to ensure that you can still meet all other financial obligations. 

  • Invest in high growth and quality stocks

When markets are volatile, it can be difficult to predict which stocks will perform well. To minimise risk, it is best to invest in mutual funds that focus on high-growth stocks, high-margin businesses, and market leaders within the industry. 

These stocks have the potential to withstand market fluctuations better than those with weaker fundamentals. Don’t forget to consider dividend yields as well since these pay-outs can protect you against losses if prices fall. 

  • Diversify with different types of mutual funds

Diversifying your portfolio can help to mitigate risk when investing in SIPs. For example, instead of investing only in an equity-oriented SIP mutual fund, consider diversifying into bonds, gold mutual funds, hybrid funds and international funds as well. This will allow you to spread your risk across different markets and asset classes, reducing your exposure if one particular investment underperforms. 

  • Have an emergency fund 

Investing requires patience and a long-term view and having an emergency fund is an integral part of the process. It provides a financial cushion during difficult times, allowing you to avoid liquidating your mutual fund investments if they become too volatile. 

With an emergency fund to fall back on, you can weather unforeseen circumstances or economic downturns without having to take drastic measures such as selling off shares or prematurely withdrawing from your SIP plan.

To wrap up

Market volatility is a natural phenomenon, and it can play an integral part in your SIP investment if managed well. Therefore, remember to stick to your chosen plan and don’t adjust it due to emotions. Spread out your investments among different asset classes to diversify the risk and pay attention to fund performance. Make periodic reviews of your portfolios so that optimum investment decisions are made through different market cycles for better returns.