Market volatility can be a cause of concern for many investors, but it also presents an opportunity for those who know how to manage it. If you are looking to invest in a way that can help you benefit from market fluctuations, then equity linked saving schemes (ELSS) through systematic investment plans (SIPs) can be a smart choice.
ELSS funds are tax-saving mutual funds that invest primarily in equities, offering long-term capital growth along with tax deductions under Section 80C. Here’s how you can use the market volatility to your advantage with ELSS SIPs:
- Benefit from rupee cost averaging
Market volatility is often marked by fluctuating stock prices. SIPs allow you to invest a fixed amount regularly, regardless of the market conditions. During periods of market downturns, your SIP buys more units when the market prices are lower, and fewer units when the prices are higher.
This helps average out the cost of your investments over time. Over the long term, this strategy can lower your overall cost per unit, enhancing your potential ELSS returns.
- Long-term gains through compounding
The key to making the most out of your ELSS SIPs during volatile markets is to stay invested for the long term. Equity markets tend to rise in the long run, despite short-term volatility. The longer you stay invested in ELSS mutual funds, the more you benefit from the power of compounding.
Your investments will grow exponentially, and even if the market fluctuates in the short term, your consistent investments will help you accumulate wealth in the long run.
- Leverage the power of diversification
ELSS funds invest in a diversified portfolio of stocks across various sectors, reducing the risk of your investments being impacted by market volatility in any one sector. This diversification helps cushion your portfolio from severe market downturns.
By spreading your investment across different companies and sectors, you ensure that you are not overly dependent on the performance of a single stock or sector, thereby reducing your overall risk exposure.
- Take advantage of market corrections
Market corrections — when stock prices fall sharply due to economic or market events — can be intimidating, but they are also an opportunity to buy good stocks at a lower price. With ELSS SIPs, you can take advantage of these corrections without having to time the market.
Regular investments through SIPs mean you are continuously buying into ELSS funds, including during market dips, which could lead to better ELSS returns when the market recovers.
- Use SIP calculators to plan your investments
To make the most of your ELSS SIPs, it is crucial to have a clear investment plan. SIP calculators can help you determine how much you need to invest regularly to meet your financial goals, such as retirement or funding your child’s education.
These calculators factor in different return rates and help you assess how your ELSS returns can accumulate over time, allowing you to make informed decisions about your investment amount and duration.
Ending note
Investing in ELSS through SIPs is an excellent strategy to leverage market volatility. By practicing rupee cost averaging, staying invested for the long term, diversifying your investments, taking advantage of market corrections, and using SIP calculators to plan your investments, you can potentially maximise your returns from ELSS funds.
While volatility may seem intimidating, it provides opportunities for disciplined investors to grow their wealth over time. If you are willing to stay committed to your financial goals and take advantage of these opportunities, ELSS SIPs can be a powerful option in your investment journey.
