Wish to Beat Market Turmoil? Invest in Direct Equity-Based SIPs


If you look at the present market scenario, you will get a picture of a bearish market where the domestic equity market is testing investor’s patience and finance market enthusiasts are looking at the whole situation optimistically by trying to point out the opportunities that would come with accumulating the mutual funds of well performing businesses.

The one tip that the mutual fund gurus have to offer is for investors to take up the Systematic Investment Plan Route and purchase some very high performing stocks like HDFC Mutual Fund or SBI SIP Plan one lot at a time.

They also suggest a different approach where if you do not wish to opt for entire mutual fund portfolio and simply focus on some limited high conviction ideas, Systematic Equity Plans in Direct Equity can help immensely.

In a turmoil market like the one we are in currently, the systematic investment plan approach can most definitely help in accumulating mutual funds at low prices by averaging the costs out.

Direct Equity based SIPs can help investors in eliminating the timing of market risks by averaging out the benefits. The investors can also put a pre-decided amount of Rupees or choose specific stock quantity at regular/fixed intervals over an extended period of time.

In case the investment is constant, one can buy more units when prices are lower and lesser funds when the prices are high. Likewise, when you purchase a fixed quantity of SIP funds at fixed intervals, the cost may get lowered as a result of averaging out.

The only problem with this approach is that the direct equity SIPs do not permit automatic diversification in a way Mutual Fund SIP does until investors themselves pick a set of diverse stocks to purchase.

Direct Equity based SIPs can help you accumulate the funds of your choice in the portfolio on a constant basis. It helps the investors immensely through cost averaging benefit.

For investors taking the Systematic Equity Plan route, there are a number of things that they have to consider when doing the stock selection. Let us now look at what those factors are –

  1. Investment Cost and Time Frame

Mutual Fund Gurus suggest investors have a clear view of the stock price and the company for at least 2 to 3 years. You should look at the company’s cash flow statement, balance sheet, return ratio, and ultimately note the impact of macro and micro level changes happening in the industry on ‘X’ Company.

Direct Equity based SIPs help investors save on the expenses that they incur.. Iin the case of SIPs, fund managers have the edge and the ability to transfer funds for better funds in the market (which can lead to booking of profit when needed or shift the funds to safety of debt when the whole situation goes awry), in case of Direct Equity based SIP, the investor has to do everything themselves, something that calls for a deep understanding of the Mutual Fund market.

  1. Present Market Situation

Investors have to be cautious of how the domestic market is performing when they invest in Systematic Equity Plans. They have to look into the rising oil price, outflow of the foreign investor money, the possibility of a trade war, or the declining Rupee value.

Domestic Equity standards are trading somewhere around 8% to the 10-year average ratio. But, a faster economic growth pace and the present commodity prices situation can be beneficial for corporate earnings growth.

In 2019, the corporate earnings are expected to grow at 20% after years of single-digit rise. But because the equity market is already focused on earning recovery in prices, there can be seen some downward pressure on the market in a few years.

Summing Up

The basic rule of thumb in the Mutual Funds Investment Market is – If the market is performing in a volatile stage, investors with risk-taking ability should focus their attention on Systematic Equity Plan. But even if the investment mode has a lot to offer to the investors, there are a number of factors that the investors have to account for themselves.

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