Why Investors Shouldn't Stop SIPs In This Economic Slowdown ?

Why Mutual Fund Investors Shouldn't Stop SIPs In This Economic Slowdown

With the looming recession fears, many investors are pausing their SIPs. It has also been historically observed that investors tend to stop their SIP investments during an economic slowdown. However, if you look at the mutual fund returns from 2008 till now, a recession can be the best time to invest in the market. So, if you are thinking about stopping or pausing SIPs for a while, you need to read this article.

How can SIPs help in a recession?

Recession is never welcomed. However, if you are investing in mutual funds via SIPs, an economic slowdown can be a boon for you. The most important aspect of investing via SIPs is rupee cost averaging. This term refers to investing practice that involves investing an equal sum on a particular date without worrying about the fund's unit price. This is when you do not try to time the market but regularly invest a certain sum of money and stay invested for a longer time to reap the benefits.

To understand this better, let’s look at how rupee cost averaging works:

Months	Amount invested	Per unit price	Number of units bought
15th January	Rs. 10000	100	100
15th February	Rs. 10000	95	105.26
15th March	Rs. 10000	90	111.11
15th April	Rs. 10000	85	117.65
15th June	Rs. 10000	89	112.36
15th July	Rs. 10000	92	108.70

 

Suppose you started investing in this (say) fund A in January, and the date of SIP investment you set is the 15th of every month. However, due to the recession, markets started to tank, and unit prices kept going down, then they started to revive in the 5th month, June. Now, take a close look at the number of units you get when the price goes down. As the price went down from Rs. 100 per unit to Rs. 95 per unit, the number of units received went up from 100 to 105.26. This example depicts the benefit of staying invested even when the economy slows down. As a SIP investor, when the prices go down, you should stay invested rather than pause your SIPs, as you will get more units than when the prices are soaring.

Now let’s compare it with lump sum investment to understand another benefit of SIP: risk mitigation. The total sum invested in the six months is Rs. 60000 divided into equal parts over 6 months. Now, if you had invested this total amount on 15th January, the total number of units you would have received was Rs. 60000/100 = 600 units.

At the end of the 6th month, you have a total of 655.08 units, as you invested via SIPs. So, you achieved a clear profit of 55.05 units just by breaking down your investment into small parts. This also reduced the risk to quite an extent, as you didn’t put all the money in the fund immediately.

Why do you stay invested for the long term while investing via SIPs?

Now you know why you shouldn’t stop investing during the economic slowdown, so next, let’s find out why you should stay invested for a longer tenure to reap better returns.

Suppose you and your friend started investing in the same fund, say, Fund X, on the same date and the same amount of Rs. 10000 every month. However, you stopped the SIP after five years due to the recession, while your friend continued it for ten years. Now let’s take a look at the returns:

Particulars	You (5 years investment)	Your friend (10 years investment)
Total Investment	Rs. 600000	Rs. 1200000
Returns (@12% rate)	Rs. 224864	Rs. 1123391
Total value	Rs. 824864	Rs. 2323391

 

The returns and total value of your friend who stayed invested for ten years are higher than yours. You may say that you invested half of your friend, which is true. However, you haven’t achieved half of the returns generated by your friend while you have invested half of what he did. This is due to the computing of returns which helps in the growth of the returns when you stay invested for a longer tenure.

Conclusion

While the recession is something to worry about, if you plan your investments thoroughly and stay invested, and regularly monitor the investments, recession can also benefit you in the long term.

Raja Bhattacharjee

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Investing in mutual fund with goal ..

 

What happens when you invest in mutual funds with a goal?

The times were gone when there were only a few selected schemes that existed, and you had to choose one of them. Nowadays, mutual fund houses offer different schemes, and you can invest in these funds as per your financial goal.

But what difference do you make when you start investing in a mutual fund by considering a financial goal?

Well, before understanding such a question, let us know what a financial goal is. The financial goal is a financial target to aim for while planning your personal finance. It includes retirement planning, children's education, buying a house, etc. When your aim involves finance, and you have to achieve it by saving or investing, it could be termed a financial goal.

Investing in mutual funds schemes based on your financial goal might be the best option as it can help you diversify your portfolio according to your risk appetite and expected rate of returns. Time horizon plays a vital role in mutual fund investing based on your financial goal, which could be long-term, short-term, or medium-term.

When you have a goal of investing, it will help develop discipline and give you better returns. Let's understand what happens when you invest in mutual funds by taking a goal in your mind:

Developing strict discipline

Investing without having any goal lead you to irregularities in your strategy. The goal motivates you to keep investing in a particular mutual fund scheme through a SIP that helps you develop financial discipline. Financial discipline ultimately leads you to create wealth over a long period.

Start early and get rewarded.

An inherent advantage of investing in the market is you will get compounding benefits. For instance, two people begin investing at two different ages, say twenty and thirty. If someone started investing when they were twenty, their portfolio value would be far higher than if they had started ten years later.

No investing mistakes

Many investors frequently exhibit greed in up-trending markets and anxiety in down-trending markets. Due to this practice, investors purchase dangerous products at exorbitant prices and then sell them at a loss when markets perform poorly. Instead of panicking exits and entering, a disciplined investor takes decisions with a long-term perspective. Markets have consistently increased over the long term. Mutual fund investing helps you keep invested in a particular scheme for a more extended period to offset the losses during the market crash.

Risk profiling

Your mutual fund scheme is selected based on your risk profile only. When you have a goal for your mutual fund scheme, you do not change your risk profile and try to stay invested until you achieve such a financial goal. It helps you in offsetting the market crashes, as every market crash recovers when economic conditions improve. In the long term, your mutual fund will benefit you in either way.

Diversified portfolio

Your risk profile is majorly based on your financial goal's time horizon and sensitivity level. Consequently, the diversification of your portfolio depends on your risk profile. You can reduce the risks of holding just a few equities or a single asset class with a diversified portfolio. Diversification makes it possible to accomplish goals without experiencing too much instability. Your mutual fund scheme helps you to keep aligned with your risk profile and diversification, which ultimately helps you in attaining your financial objectives in the expected time.

Having a financial objective to invest in any investment avenue helps you make the right and conscious investment decisions. It can help you attain goals and assist you in getting a passive income or becoming equipment for wealth creation. Random investing in mutual fund schemes could be tiring and lead you to make the wrong investment decision due to a lack of clarity.

Raja Bhattacharjee

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" Business Cycle Funds "may be another good strategy

" Business Cycle Funds "may be another good strategy  

Should you invest in business cycle funds?

Like the climate, which has seasonal cycles, the economy also goes through cycles. Business cycles are a sort of variation that may be seen in the overall economic activity of a country. A business cycle comprises expansions that occur roughly simultaneously in many different economic regions and sectors, followed by similarly widespread contractions (recessions). The series consists of growth followed by a boom or peak, then recession and troughs (when the economy is in deep depression).

Although not periodic, this series of adjustments occur frequently. These changes can be triggered because of many factors such as inflation, interest rates, government policies, foreign countries' actions and policies, changes in the demand, and supply of money, etc.

Different business cycle phases might appear at various points in time in various economies. Consequently, there may be occasions when a specific business cycle in one economy offers business chances for other economies.

Now, what is a business cycle fund?

A business cycle fund identifies economic trends and invests funds in the sectors likely to outperform by deploying the business cycle approach of investing. During the expansion phase, it'll buy stocks of firms that might benefit from the business cycle or market/sector leaders.

Business cycle funds invest in various companies irrespective of the same sector, while sector funds invest only in one sector-specific sector company. For instance, a technology sector mutual fund will invest only in technology-related companies. In contrast, a business cycle fund will invest in all those companies that might be positively impacted at any particular phase of the economy.

What advantages of investing in a business cycle fund?

It is critical to comprehend that sector performance fluctuates across an economic cycle. For instance, the financial sector would perform better during the recovery and boom periods. Still, industries like pharma and FMCG will probably perform significantly better than other industries during phases like the recessionary phase. For example, the pharmaceutical and communications industries were profitable throughout the pandemic even while the economy was in a slump.

A fund manager is better positioned to decide due to the large research team at his disposal because not all the companies in a sector would perform well even at the best of times. Investors can feel secure knowing that their portfolios will be strong enough to ride through market cycles and take advantage of market opportunities thanks to this investing strategy.

The scheme's investment goal is to produce long-term capital appreciation through allocation between sectors and stocks at various business cycle stages while investing with an emphasis on riding business cycles.

• It will buy stocks of industry leaders or businesses that do well when one sector does well. This will happen during an economic expansion.
• It will invest in businesses from industries that offer protection against downturns during a contraction phase.

Business cycles have gotten shorter, and a portfolio must respond swiftly to shifting conditions.

Risks involved in a business cycle fund

The major risk in investing in business cycle funds is timing. The phases in the business cycle might change quickly, and in this situation, the fund managers have to consider the changes and make appropriate investment calls.

Another risk is cyclical risk. It is the risk of business cycles or other economic cycles adversely affecting the returns of an investment, an asset class, or an individual company's profits.

Should you invest in business cycle funds?

The decision is subjective, but it is important to keep in mind the returns and risks involved. You can take calculated risks to exploit the profits offered by the funds.

If you are a new investor, staying away from thematic funds and investing in diversified equity funds will be better. To know more, you can contact us.

Raja Bhattacharjee

investmentjunctions

Kolkata

20 Years of Experience

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Financial Literacy for Women

Money Matters: Why Financial Literacy is Important for Women

Women have always been in charge of the household finances. Still, in recent years they have taken on more financial responsibility outside the home. Financial literacy is important for women because they need to manage their own finances and understand financial concepts to make sound financial decisions. Unfortunately, women are more likely than men to face poverty after retirement. A big reason for this is that women tend to live longer than men. But another factor is that women earn less over their lifetimes and have fewer opportunities to save for retirement.

But there's good news: Women can catch up by taking courses, reading books or articles, or working with a financial advisor. And the sooner they start, the better. Yet most women are in a huge time crunch, so it s difficult to find an hour or two to learn about money. To ease this issue, we've created a list to help women with financial literacy.

Financial Literacy for Women: Why It is Important

As the world progresses, more and more emphasis is placed on financial literacy. This is true for women, who have historically been at a disadvantage when it comes to money matters.

There are various reasons why financial literacy is crucial for women. For one, women tend to live longer than men, which means they need to be prepared for a longer retirement. Additionally, women are more probable to take time out of the workforce to care for children or elderly family members. Unfortunately, this can make it challenging to save for retirement or build up enough credit to get a loan. Another reason financial literacy is so essential for women is that they are often the ones in charge of household finances. Even when they don't earn as much as their male counterparts, they are typically responsible for managing the budget and paying the bills.

Financial Literacy for Women: How to Get Started

Women are less financially literate than men, and this lack of financial literacy can hurt women throughout their lives. Financial literacy is important for women because it can help them make better decisions about their money, understand their rights and responsibilities when it comes to personal finance, and avoid financial exploitation.

Women can do a few things to start becoming more financially literate. First, they can educate themselves about basic financial concepts like budgeting, saving, and investing. Second, they can seek out resources like books, websites, and articles that provide information about personal finance. And finally, they can talk to someone they trust about money matters to get advice and guidance.

Becoming financially literate doesn’t have to be difficult or time-consuming.

Financial Literacy for Women: Tips for Saving Money

While there are multiple ways to save money, here are a few tips that can help women get started on the path to financial literacy:

1. Know where your money is going:

Track your monthly spending and see where you can cut back. There's no need to deprive yourself, but small changes can make a big difference over time.

2. Define a budget and stick to it:

Determine how much you need to save each month and set up a system that works for you. Whether it is setting aside cash in envelopes or transferring money into a dedicated savings account, make sure you're disciplined about sticking to your plan.

3. Invest in yourself:

Whether pursuing higher education or taking a course, investing in your future is important. Your financial decisions can affect your quality of life and the people around you.

4. Get out of debt:

If you have credit card debt, education loans, or any other type of debt, the sooner you start working to pay it off, the better.

5. Don't forget about your retirement:

The Sooner you start saving for retirement, the better off you'll be when you're no longer working.

Financial literacy is a key skill for women to possess to maintain financial stability. With knowledge of personal finance, women can make informed decisions about spending and saving, which can lead to a bright financial future. Despite the stereotype that math is a man's subject, financial literacy is not gendered; it is something that everyone should learn. When it comes to money, everyone can benefit from being financially literate.

Raja Bhattacharjee

https://www.investmentjunctions.com/

This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.

 

 

Pros and cons of investing in physical gold

Gold on Your Mind? Pros And Cons of Investing in Physical Gold

Gold is not only an attractive investment in the case of market stress but also Indians use gold auspiciously and consider it a sign of wealth. To put it into perspective, India is the second largest consumer of gold worldwide, followed by China. In India, gold is majorly used by the household, and its demand skyrockets during the festivals like Diwali and Akshay Tritiya and occasions like weddings.

However, it is wrong to say that gold can be purchased only in its physical form. People can also invest in gold through gold ETFs, gold funds, and sovereign gold bonds issued by the RBI.

When we talk about investing, diversification is an essential part of investing strategy if you are willing to optimize your portfolio by minimizing the risks and maximizing the average returns. Gold might be a better option during market stress, as it is a tangible asset. But it doesn't mean you can blindly put all your hard-earned money into gold without investigating all the other aspects of investment, making comparisons, and analyzing your requirements.

Let's discuss the pros and cons of physical gold investment.

Pros of investing in physical gold

Hedge against inflation

Gold holds the tangible value of the precious metal, which only rises over time if you look at the historical data. When inflation increases, the purchasing power of individuals decreases. If you have cash in your hand, it will decrease the value over time. On the other hand, when we talk about different types of investments, like investing in the stock market, it also goes down as individuals start selling their shares out of fear.

Protection during market stress

It is not necessarily true, but when the market is under stress, and the economic condition is not looking good enough to sustain, gold prices may increase as everyone preferably invests in gold. The price of gold is positively correlated with the increase in customers' negative expectations, but it is not always true.

Availability

There is no shortage of market availability for physical gold. You can buy them from any jeweler. However, it is necessary to ascertain the quality of gold you buy from your jeweler. You must be aware of fraud. You can just go and buy gold either in the form of jewelry or bars. You must keep one thing in your mind when you purchase jewelry. You have to pay to make charges additionally.

Cons of investing in physical gold

Storage problem

Your home is not the best place to keep your physical gold. It will help if you keep your physical gold in banks or any other service that keeps your valuables safe in exchange for an annual charge. It is important to understand the risk of theft will always be a concern for physical gold.

No passive income opportunity

If you are looking forward to having a passive income from your investments, there are better options than investing in gold. Rental income, interest, dividends, etc., are examples of passive income, which is not possible when you invest in physical gold. You will get the value of gold after selling it.

Low resale value in the local market

If you buy pieces of jewelry as an investment, you will get only 90-95% or less of the current market value of your physical gold jeweler. Moreover, only some jewelers will be willing to exchange your gold for money. Isn't it annoying enough? It might save the value of your money, saving you from market stress, but you need to remember that pieces of jewelry will not add value to your asset allocation.

A gold market correction can hurt investors.

Investors, when selling their shares due to panic, have observed that they start to buy gold at premium prices. Investors start buying shares of fundamentally strong companies when the stock market recovers then gold prices go down. Such a panicky decision might hurt the investors.

Conclusion

Gold appears to be a good hedge and safe investment against inflation if you have the knowledge and financial expertise. Whether you are looking to invest in physical gold bars or just starting out investing in general, you should ensure that you understand the risks before you get heavily involved. 

This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.

Raja Bhattacharjee

https://www.investmentjunctions.com/