The COVID-19 pandemic has caused huge disruption, both in the world economy and the Indian economy. The stock prices have fallen down like nine pins. Many stocks are available at half the price or even lower compared to its price 6 months ago. People are hesitant to invest their money as they fear the more fall down in the market. However, there is a group of people who believe that it is a good time to invest the money as stocks are available at a much cheaper rate.
So is it a good time to start investing?
Let’s understand investing first.
What is Investing?
When we talk about investing, we mean long term investment. There is nothing like short term investment if you are talking about investing in stocks or mutual funds. The correct word for the short term investment is “Trading”. We are here to talk about if it is a good time to start investing (and not trading). If you want to know more about investing then I suggest you read Investing Guide – For Beginners. If you want to know more about investing and trading & how investing makes you rich then you can read “Can Investing Make Me Rich“.
Different ways of Investing
There are two ways of investing money in stocks/mutual funds :
- Lumpsum Investment
- Investment through SIP
Lumpsum Investment: Lumpsum investment is a one-time investment. The investor invests a fixed amount of money only once and waits for the money to grow. Since the money is invested only once, the amount invested is generally large as compared to SIPs.
e.g. An investor “A” invests Rs 2.4 lac today and waits for it to mature for 20 years without investing any additional amount.
Investment through SIP: SIP stands for “systematic investment plan”. In this type of investment, the investor invests a certain amount of money periodically(weekly, monthly or quarterly) until the maturity.
e.g. An investor “B” decides to invest Rs. 1000 per month starting from this month up to the next 20 years.
Pros and cons of Lumpsum Investment and Investment through SIP
Since the initial amount invested in lumpsum investment is more, you will keep getting more interest from the very beginning. Your compounded amount will be much more. If the market is only going to be up from here on (without any recession in between) then you should bet on “Lumpsum Investment”.
However, you can’t guarantee that there will be no fall down like 2020 for the next 20 years. 20 years is a long time. Investing through SIPs makes sure you invested during the highs as well as the lows in the market. Thus, the risk is lower if you are investing through SIPs contrary to lumpsum investment.
Is it a good time to start investing?
Case-1: If you are investing a lumpsum amount
My suggestion is a big “No” if you have decided to invest a lumpsum amount. Nobody knows when this pandemic is going to end. Until a vaccine is prepared, the markets will remain uncertain. Already there have been so many layoffs by Ola, Zomato, and other companies. The condition is only going to get worse until the vaccine is found. There is a big risk if you want to invest a lumpsum amount now. If you have decided to invest a lumpsum amount then I advise you to wait till the vaccine for this pandemic is found.
Case-2: If you are investing through SIP
There is no good time or bad time if you are investing through SIPs. Investing through SIPs will make sure you have invested through both the highs and lows in the market. It is an evergreen way of investing. The sooner you start the better it is. So if you are thinking of investing through SIPs then I suggest you start investing from now itself.
It is always the right time to start investing if you are investing through SIPs. Also, if you are looking forward to longterm investment then you should consider investing through SIP as it is much safer than lumpsum investment. Having said that if you are looking for a lumpsum investment then you should wait till the cure is found for the COVID-19 pandemic.
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