Four money making tips that will make you embrace your SIPs even harder

The coronavirus pandemic has upended our lives in a multitude of ways – from the way we work to the way we socialize. It has also had a corrosive impact on our savings and financial plans. With the stock and bond markets experiencing extreme volatility, many of us are wondering if this is the right time to invest. While it is a valid concern, the general consensus among experts is that making major changes to your investment strategy may not be a good idea. If you have been investing in mutual funds through a systematic investment plan (SIP), try to stick to it unless your income has been severely impacted. Why? To earn more money! This is because investing through an SIP enables you to avail the benefit of rupee cost averaging, which means you gain more shares when the markets are falling. 

For building an emergency fund

Given the unusual circumstances, it is crucial to have an emergency fund that will help you weather the coronavirus storm. One of the easiest ways to do this is to build an emergency fund by investing in debt mutual funds through an SIP. Ideally, an emergency fund should cover at least 3-6 months of your monthly expenses. This will help you pay for children’s education and equated monthly installments in addition to basic living expenses including food, rent and other utility bills. 

To address your liquidity crunch

The COVID-19 crisis has rendered hundreds of thousands jobless, whereas others have been forced to take huge pay cuts. If you find yourself in a similar situation, the wise move would be to invest in a liquid mutual fund. These funds offer short-term maturity while yielding higher returns than fixed deposits or savings accounts. On average, liquid funds delivered returns of over 7%, which is significantly higher when compared to 4-5% returns offered by savings accounts. However, the key advantage of liquid mutual funds is that you can redeem your invested capital during emergencies. Since there is no lock-down period, it will take no longer than 1-2 working days. 

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To meet your long-term financial goals

Even the most experienced of investors make the mistake of panic selling when the market hits rock bottom. Coping with a volatile market requires a long-term vision, and any impulsive actions can put a dent on your portfolio. If your financial goals remain unchanged and you have a longer horizon, continue investing in your SIPs. While it is natural to feel overwhelmed by the current market situation, committing to your SIPs will allow your portfolio to benefit from the volatility. 

To avoid extreme volatility in the market as a new investor

Contrary to popular belief, new investors could choose mutual funds as the preferred vehicle to benefit from portfolio diversification in a staggered manner. If you are new to the market, the rule of thumb is to allocate your funds in a “70-20-10” mix – 70% of your portfolio to large-cap funds, 20% to mid-cap funds and the remaining 10% to small-cap funds over the time period of 7-10 years. 

If you have surplus funds, then you can consider increasing your investment amounts in mutual funds. Another way to do this is to redirect a portion of your earmarked funds into equity However, this is a bold step and you need to have a steady income source. Markets go through cycles like these sporadically, and it is predicted that the current market correction can be viewed as an opportunity to invest for the long term. Nevertheless, your investments should be aligned to your financial goals and risk tolerance, and you cannot afford to go overweight on your portfolio in the current environment.

(By Zafar Imam, Lead, OPPO Kash)