Investors must hold on to SIPs during crisis: Report

As the economy goes through an unprecedented slowdown severely impacting the income levels and personal finance of individuals, a white paper by ClearTax has suggested that people should continue to invest through systematic investment plans (SIP) and not halt or exit them amid the crisis.

It said that the current market scenario is conducive to invest in equities as the stock prices have fallen to their multi-year lows. Entering the market now and staying invested for a long period of time would help investors create wealth, the whitepaper said.

The online survey by ClearTax showed that 54.5 per cent of the responses received said that this is not the right time to invest in SIPs.

The white paper titled “Covid-19: Impact on investing” said that thousands of investors exited their investments due to severe financial constraints.

“We conducted a survey and an astounding 54.5 per cent of the responses said that they believed this was not a good time to invest, even though most experts have recommended investors to increase or at least continue SIPs. Remaining 45.5 per cent have increased their SIPs to make the most of the falling markets,” it said.

Noting that investing in equity markets comes with some inherent risks, the white paper said that many investors tend to make the mistake of making an exit during a crisis. It said that Indian stock markets have witnessed several crises in the past and have emerged from those.

“Therefore under such a situation, investors must continue to invest through SIPs and not halt them or exit from holdings. A small investor will likely lose a lot of value when an exit takes place during a severe dip in the market,” the whitepaper said.

A 62 per cent of the respondents were hopeful that the markets will recover from the current crisis. Also 67 per cent people surveyed stated that there is no change in their investing strategy due to Covid.

Remaining 33 per cent were considering fixed deposits in the short term and avoiding the stock market.

It noted that industry experts are of the opinion that the current market scenario is ideal for getting started with investments in mutual funds and stock markets and 46 per cent of the survey participants agreed to the view.

Meanwhile, the gold prices are on the upward run ever since the onset of the Covid-19 pandemic. Stock markets have been volatile since the beginning of 2020, and retail investors are seeking to invest in gold, which is considered a safe haven. Due to the high demand for the yellow metal, its price has skyrocketed.

However, the survey showed that 42 per cent of the survey participants said they don’t have gold in their portfolio. The rest of the participants said that they are interested in learning about gold as an investment option.

The whitepaper said that people may consider investing in gold if their investment horizon is less than three years. On doing so, investors will be away from the market fluctuations and preserve their capital.

“If you have a long-term investment horizon, then it’s advisable to invest in stocks as they are known to provide excellent returns in the long run,” it said.