Even in the most volatile markets in perhaps a decade owing to the Coronavirus pandemic, a section of market experts and investors see an investment opportunity, especially since several quality stocks have declined severely, thereby, making them highly attractive. It is undeniably a difficult phase for any investors but as some would say: it might be an opportunity of a lifetime.
The very nature of the bear market makes it nearly impossible to guess as to when will the markets find a bottom. Global stock markets have seen a number of wild sessions. Both the equity and the commodity markets have raised eye-brows of the most astute market watchers. For instance, oil — possession for which had sparked wars in the past — seems to have fallen out of favour.
Nonetheless, the stock market and sectors like auto, pharma, manufacturing tend to grow in cycles. Efforts of central banks, governments across the globe are expected to eventually bring the situation in control. This begets the question: Is it the right time to invest in equities? Should you invest in equities through SIP?
What is a SIP?
A systematic investment plan (SIP) is a plan which allows an investor to put in a specified sum on a regular interval into a mutual fund or a trading account. The deductions are mostly automatic and often require a long period of commitment. SIP route to investments is considered on a disciplined and relatively safe method of investment.
Pro’s and Con’s of SIP
Pro’s: Most certainly the SIP route to investment takes out the everyday stress away as it is a fixed investment made on a periodic basis, however, it should be reviewed regularly too. Since the SIP route usually involves investing a small sum on a regular basis, an investor who started early can reap the benefit of compounding. Another reason SIPs investment is booming in India, even during turbulent time is owing to the convenience it brings to the table.
Con’s: An SIP in the wrong funds makes your investment as risky as any other instrument. Moreover, the method cannot be the one-stop plan for investors. It may well fit in the larger scheme of things.
In India, despite the pandemic induced volatility, SIP continues to be the preferred route of investment in mutual funds, especially for retail investors. Another instrument gaining popularity is ‘Equity SIP’ (ESIP).
Equity SIP is an instrument that aids investors in spreading out their investments over a period of time. It gives the advantage of rupee cost averaging and similar to mutual fund SIP helps develop a corpus with regular, fixed and small investments. However, ESIP may not be thought of as a replacement of mutual fund SIP. Experts suggest ESIPs as a good supplement to your existing mutual fund portfolio.
How does it work?
Similar to mutual fund SIP, an investor can pick a stock or a set of stocks and register for Equity SIP (ESIP). The frequency of investment in ESIP too varies from – daily, weekly or monthly. For instance, Mukul may register an ESIP to buy 20 shares of company X each month. If he intends to buy shares of 10 companies each week, he must register all these shares under ESIP.
Therefore ESIP allows an investor to take a call on the number of stocks he or she intends to buy. This gives the investor the freedom to modify the plan according to the requirement. Besides, during a cash crunch, you have the option to pause or stop your ESIP.
Time to invest in equities through SIP?
Investing has always been about identifying the right stocks which will be about to rally. The biggest challenge for investors right now is to identify those stocks in such a volatile bear market.
If market pundits are to be believed this is the right time to invest in equity, especially in the healthcare, FMCG and telecom sector.
Even if you invest in equity through SIP, these two sectors among others are expected to perform well during the Coronavirus pandemic. Exerts reason that the lockdown has created a massive demand for the internet. Since the cinema’s along with other non-essential services are closed due to the lockdown, online entertainment content providers have witnessed a sharp surge in demand for TV shows, movies and games.
For obvious reasons manufacturing of medical equipment is the need of the hour. The ultimate solution of the pandemic will also come from the health care professionals and medicines produced by the healthcare companies. In fact, several countries are struggling to acquire medical equipment in these times.
The FMCG sector may well be the sector witnessing the least impact of the lockdown as it is an essential service. Investment in such stocks could be a safe bet.
Fear and greed have always guided the markets. The coronavirus pandemic has certainly caused massive panic, however, it is also dubbed by many experts as an opportunity of a lifetime. It might be the right time to invest in equity. Investors may even explore investment in equity via SIP to reduce risk.