Should you rely on discipline and consistency to earn high returns, or take more risk and buy the dip? Learn more about both strategies and know which one you could choose according to your financial goals and investor profile.
Understanding two popular strategies of investing:
The two popular strategies of investing are systematic investment plans (SIPs) and buying the dip. The following segment contains a brief summary of both investment strategies:
Systematic investment plans (SIPs) help investors invest a fixed amount regularly in a mutual fund scheme. If you opt for this mode of investment, you can choose to invest monthly, weekly, or daily in a mutual fund scheme. SIPs help you leverage the power of compounding and rupee-cost averaging to make the most of your mutual fund investments. You can also use an SIP return calculator to calculate your mutual fund returns before investing.
Buying the dip is a popular phrase in investing that refers to another effective investment strategy. When an investor buys the dip, they buy assets at a discounted price when the market is low. Hence, to buy the dip, you must wait for the prices of assets to dip due to market fluctuations or economic factors and then purchase the asset at a discounted rate.
Advantages and drawbacks of regular SIPs vs buying on dips:
Pros and cons of regular SIPs: SIP investments offer several key advantages to investors:
- Rupee-cost averaging is a key advantage of regular SIP investments. You can buy more units when a fund’s NAV (net asset value) is low and fewer units when the NAV is high. The cost of buying these units averages out over time.
- SIPs help you benefit from the power of compounding. If you invest regularly in a mutual fund via SIP for a long time, you will earn higher returns.
- Regular SIPs are very flexible, and an investor can begin investing in a fund at a minimum price of ₹ 500 monthly.
- Investing through SIPs is very convenient. You can invest and withdraw your funds very conveniently on choosing the SIP mode of investment.
Here are the cons of investing in SIPs:
SIPs might not be suitable for all investment horizons.
When the market is bullish, SIP investments might yield lower returns when compared to a “buy the dip” strategy.
Pros and cons of buying the dip: A major advantage of buying the dip is the potential of very high profits over a short-to-medium period. A few drawbacks of this strategy include the high risk involved, and difficulty in timing the market. Several investors find it difficult to time the market while buying the dip.
Which is better – Regular SIPs or buying on dips?
To decide on the investment strategy that suits you best, you must know the kind of investor you are. If you can spend a significant number of hours every day monitoring your investments, buying the dip is probably a better option for you. However, if you wish to rely on a professional to handle your investments and if you wish to invest in a more disciplined manner, you must choose SIPs.
To sum up
In conclusion, your decision depends on your analysis of your investment style. You must use an online SIP returns calculator to calculate your SIP returns before investing. Doing so can help you develop a strategy to meet your investment objectives.