All You Wanted To Know About SIP

Is rupee cost averaging effective across all market phases, including uptrends, consolidations and downtrends? You probably might not have observed its performance in each phase or may have exited investments upon seeing negative returns. Rakesh Deshmukh takes a closer look at the scenario

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You have likely heard from friends, colleagues or mentors the adage of 'buy low, sell high', which means purchasing securities such as stocks, commodities or any asset at a low price and selling them at a higher price to generate profits.

Perhaps you have attempted this strategy yourself, aiming to buy at a low price and sell at a high price. However, the primary challenge you may encounter is determining what constitutes a low and high price.

It's true that in the stock market, pinpointing the exact lows and highs is not as easy as it sounds. It demands extensive calculations, assumptions, experience, knowledge and skills to gauge these levels accurately. Despite putting effort, there is no guarantee of identifying the precise highs and lows of securities. Even many accomplished investors or traders have made incorrect predictions numerous times given the unpredictable nature of the market. There is no universal rule to define the market's low and high points.

It's all about probabilities. Even if you find the lows it requires a lot of courage to buy at the low point. If we cannot predict the proper highs and lows of the market or any security, what is the solution? Well, the solution is to invest regularly, irrespective of the time or phases of the market, in a disciplined manner. We have already opted to invest small amounts of our hard-earned money regularly, whether monthly, quarterly, half-yearly or annually, into selected mutual funds via SIP, which stands for systematic investment plan.

Defining SIP