What is SIP?
Unlike a lump sum investment, you spread your investment over time with an SIP. Therefore, you don’t need to have a large amount of money to get started with your mutual fund investment through SIPs. By investing via an SIP, you are forced to set aside a sum at regular intervals, which help you instil a sense of financial discipline in the long run.
Over the short history, crypto-assets have generated the highest returns among all asset classes. But, is it sustainable? This is a question that has polarized the world.
Investing in cryptocurrency is a high-risk activity. Several experts would advise you to invest or trade in crypto with the money you won’t regret losing. Not just from the volatility point of view, in terms of regulations also there is not much clarity. In India, RBI has been warning investors against holding cryptocurrencies. Yet, people continue to invest and in fact, the crypto community in India is bullish on the future.
Even after considering all the risks involved, if a person decides to invest in cryptocurrencies, he can do that in many ways. One of them is SIP, currently being offered by some exchanges in India. A person can do SIP independently also by buying crypto for a fixed amount daily or monthly basis and storing it in his/her own preferred wallet or in hardware wallet. However, one question does come to mind, as to whether one should do SIPs in cryptocurrencies or not?
Many financial experts believe that after considering all the risks and volatility, SIP may be a preferred route for building wealth through cryptocurrencies for first-time investors.
Dr. Vinay Asthana, Associate Professor at Alliance School of Business, told FE Online, “The key advantage of a systematic investment plan (SIP) is that the problem of timing the market is rendered irrelevant. This makes SIP an effective strategy in the face of market volatility. Moreover, if markets are efficient, timing the market is likely to be a difficult and often futile exercise.
SIP makes sense for long-term investors of traditional assets like stocks and mutual funds. When it comes to cryptocurrencies, Dr Asthana said crypto assets are several times more volatile than traditional asset classes. This constitutes a strong argument supporting SIP for crypto assets.
Control impulsive investment
Cryptocurrencies are one of the most volatile instruments available for investment. Many times investors are driven by their impulses. However, this may be dangerous. SIP may help control this impulsive investment.
“Due to large fluctuations in their prices, it becomes crucial to strategize the entry and exit points of these investments. In this context, an investment technique like SIP which reduces exposure to market volatility risk of the investor is extremely helpful. SIP will also help in avoiding impulsive investment in cryptos. Apart from SIP, other risk-mitigating strategies which are getting popular for investing in cryptocurrencies include investing in a basket of cryptocurrencies or opting for index funds,” Prof Purushottam Anand, Assistant Professor at IFIM Law School, said.
“There are also index funds that only have exposure to the top 10 or top 20 cryptocurrencies. However, since most of these investment products /platforms are not regulated in India, investors must carefully analyse and research any such schemes before investing. It may also be helpful to consult a financial advisor before investing,” Prof Anand added.
Risks of Crypto SIPs
Experts are unanimous that investors first understand that the crypto world is an emerging space and so cryptocurrencies are highly volatile and a risky asset class. They should carefully select the minimum investment, redemption of tokens, tokens included in the plan and lock-in period for the SIPs, experts say.
“One should not lose sight of the basics when it comes to investing, be it crypto or any other financial instrument,” said Chandra, adding that deep research on performances and projects of cryptocurrencies are required before taking the plunge.
Subburaj said investors should have a room for safety during turbulent periods and their plans should have stablecoins to avoid such volatility. “Such a practice will give them the comfort to stick to their original long-term plan.”
Disclaimer: The suggestions/recommendations around cryptocurrencies in this story are by the respective commentator. Financial Express Online does not bear any responsibility for their advice. Please consult your financial advisor before dealing/investing in cryptocurrencies.