Elections and Volatility - Ignore the Noise and Continue Mutual Fund SIP

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Elections and Volatility - Ignore the Noise and Continue Mutual Fund SIP

Tuesday, 02 July 2024 | Agencies

Elections and Volatility - Ignore the Noise and Continue Mutual Fund SIP

Elections often bring volatility to financial markets due to uncertainty over outcome and future policies. However, history shows this noise eventually fizzles without altering long-term equity returns. 

Wise investors focus on continuing systematic investments to harness the power of compounding instead of getting swayed by near-term fluctuations. In the section below, we'll discuss the equity mutual fund investment.

Understanding Election-Linked Volatility

As elections approach, markets start pricing in potential outcomes and policy changes. It leads to heightened volatility, especially in the run-up to results day. Outcomes perceived unfavourably by investors can sharply impact market sentiment in the short run. However, markets, the economy, and companies eventually adjust to new realities.

The actual long-term returns generated have often been disconnected from the uncertainty of election outcome. Those who stopped SIPs during volatile times would have missed out on bargain-buying opportunities rather than protecting gains.

Factors Contributing to Volatility

Political uncertainty is one key contributor to market volatility. Election outcomes are challenging to predict accurately, leading to suspense over future economic and regulatory policies. Despite fundamental strength, markets tend to overreact negatively to unfavourable results. However, the initial turbulence eventually fades out as the focus shifts back to economic and corporate earnings growth. Equity funds mitigate volatility better than individual stocks, too.

Policy changes and economic reforms often spark volatility as well. Markets anticipate proposed amendments, resulting in speculative fluctuations. However, India's economic ascent has persisted regardless of political party as infrastructure improves and consumption expands due to a young population. Meanwhile, debt mutual funds offer relative stability during volatile times sparked by major reform announcements, as the adverse impact is generally temporary.

Furthermore, investor behaviour and market sentiment – driven by either euphoria or fear also heighten volatility surrounding events like elections that can swing perceptions. Many investors tend to hit the panic button and prematurely stop equity fund SIPs to prevent short-term losses from further investments during such times, even though history suggests that leadership changes have not meaningfully impacted long-term returns. Halting SIPs loses out on the benefit of rupee cost averaging, which helps normalise cost. Staying invested helps tide over sentiment-led volatility so that investing discipline focused on long-term goals remains unbroken.

Why You Must Invest in SIP?

1. Inculcating Financial Discipline

SIPs involve consistent periodic investment in pre-determined sums of money. Since SIPs tend to get auto-debited on the investor's instruction, they ensure that investments are made regularly, thus ensuring investors remain on track with their investment plan. Equity mutual funds are best suited to leverage the discipline enforced by SIPs over the long term.

2. Eliminates Need to Time Market

SIP investment buys mutual fund units periodically—investors get fewer units when prices are high and more when prices are low. This eventually leads to averaging out the overall cost of investment, evening out the impact of market volatility on investments. It eliminates the difficult task for investors of needing to time the market to purchase their investments at reasonable costs. Debt funds are relatively more stable, but SIPs help manage volatility.

3. Benefit of Compounding

With SIP, investors can make compounded returns on investments. That is because each SIP instalment and the return made on previous instalments are re-invested in the fund, eventually making more returns on previous returns for the investors. This compounding benefit leads to higher investment return potential, especially in the long run.

4. Investing in Convenience and Flexibility

SIP offers several options and additional features. Additional features such as multi-SIP, SIP Top-up, Pause feature, any-day SIP, etc., ensure investors have complete flexibility in investing. Multi-SIPs enable investors to invest across mutual funds through single SIP instruction conveniently. Any-day SIP will enable investors to choose the day of the SIP debit as per their convenience and affordability. 

Aditya Birla Sun Life Mutual Fund SIPs

Aditya Birla Sun Life Mutual Fund offers a Systematic Investment Plan or SIP to invest easily and conveniently in its schemes. You can start a SIP quickly online by registering yourself, choosing a scheme and investment details, completing KYC formalities and providing bank details to set up an auto debit of the chosen amount regularly into the scheme.

You can monitor your SIP investments, receive account statements, and raise service requests through the Aditya Birla Sun Life MF app or online portal. You also have the flexibility to discontinue, pause or modify the SIP as per changing life circumstances if required. But ideally, a SIP should be continued uninterrupted to maximise returns.

Steps to Invest in SIP

1.    Investors must choose an equity mutual fund or debt fund scheme from ABSL Mutual Fund that offers an SIP facility based on their goals, timeframe, and risk appetite. Most schemes have an SIP feature.

2.    Decide the amount to invest regularly each month or quarter via SIP and the periodic frequency. A higher frequency, like a monthly SIP, better utilises the power of compounding over the long term.

3.    If you are not already KYC compliant, you must complete online KYC formalities by providing PAN details, Aadhar numbers, etc. This is a one-time activity for investing in mutual funds.

4.    Make your first SIP contribution online to begin monthly auto-debits seamlessly. This enables the orderly commencement of goals-based investing discipline.

5.    Log in to the ABSL Mutual Fund portal to register a bank account for the Electronic Clearing Service (ECS) mandate for smooth auto-debits of subsequent SIP amounts on specified dates.

The Bottom Line

Elections bring uncertainty, but equity investments have delivered over the long run despite volatility. Rather than halting SIPs, continue systematic investments to leverage the power of rupee cost averaging and compounding. Stay focused on your goals. Aditya Birla Sun Life MF offers a convenient platform for disciplined investing across market cycles. Block out the noise and persist with SIPs to create wealth.


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