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Systematic Mutual Fund (SIP) investment plans have enabled wealth creation for many Indians. Now, cryptocurrency startups are offering similar products to Indians, which in the long run could help tame the high price volatility of virtual assets. How do cryptocurrency SIPs work? What are the main differences between them and mutual fund SIPs? Aseem Gujar and Partha Sinha discover…
If you had invested, say, a lump sum of $50,000 in Bitcoin in 2017 when it was trading at 12 lakh, you would have had to wait three years to break even as the price of the crypto token crashed .
But if you had sold the asset when its value fell nearly 80% in 2019, you would have seen near-total capital destruction.
Imagine you had managed to keep your nerves, the return on your 2017 investment would have now been worth around 150%.
However, if you had the opportunity in 2017 to invest the amount (`50,000) in Bitcoin in a staggered manner like in mutual fund SIPs, the return would have been 350%.
This additional growth in yield would have been due to recurring investments in crypto, regardless of market conditions. Systematic Investment Plans (SIPs) in equity mutual funds also follow this principle – the stock market cannot be timed, so it’s best to keep investing consistently.
Bitcoin’s roller coaster can lead to extreme losses or profits depending on when one enters the market. There are several avenues for investing in crypto, including buying direct, exchange-traded funds (ETFs), and interest-bearing products, which this column has explained over the past few weeks. SIP-like products are another way to invest in virtual assets – aiming to use volatility to one’s advantage.
While some startups call these products SIPs, others use terms like “recurring purchase plan.” However, investors should be careful as these products are unregulated, unlike mutual fund SIPs, which are supervised by Sebi.
No need to time the market
Crypto is a 24/7 market and it is nearly impossible to track all the time. Industry players said there is a growing demand for SIP-like products from customers who want a long stay but are opposed to day-trading.
“Investing through the SIP channel automates the discipline part of wealth building. It also removes the timing element of the market and helps averaging dollar costs,” said Edul Patel, CEO and co-founder of crypto investment platform Mudrex, which launched a SIP-like product. last week. Startups that have launched similar products include CoinSwitch Kuber and Bitbns.
Dollar averaging involves investing a fixed amount of money in a fund, stock, or crypto, at regular intervals ignoring fluctuations in the value of the asset. This results in buying more assets when the cost is low, thus reducing the average cost per unit in the long run. Staggering the investment also reduces risk.
How to invest
You must open an account with a crypto exchange or an investment platform that offers SIP-type products. After submitting KYC (know your customer) details online, one can load money into the platform and start a SIP in any virtual asset like Bitcoin or Ether. Some companies offer SIPs in a basket of tokens to help those who don’t track crypto assets.
“Transactionally, the process is similar to mutual funds. The difference being the concept of cut-off times in equity mutual funds. Cryptocurrency being a 24/7 market has no cut-off time,” Patel said. He added that in the back-end, Mudrex sends the orders to partner crypto exchanges, which then fulfill the market orders.
Although monthly investing is a common occurrence in both crypto and traditional SIPs, it is also possible to have a daily crypto SIP due to the extreme fluctuations in their prices. Crypto exchanges typically use UPI for automated payments.
Unregulated, but taxable
Finance Minister Nirmala Sitharaman had announced a 30% tax on crypto gains in the budget, which will come into effect from April 1. Although this decision was seen as an acceptance of crypto investments, there is still no legal clarity in the absence of a law. .
In the absence of regulatory protection, crypto backers should seek expert advice before making investment decisions.
Recently, the Advertising Standards Council of India (ASCI) introduced guidelines for the advertising and marketing of crypto assets in which companies were prohibited from using the words “currency”, “securities”, “custodian” and “custodians”. because consumers associate these terms. with regulated products.
Visit www.TimesDecrypt.com for more crypto updates
If you had invested, say, a lump sum of $50,000 in Bitcoin in 2017 when it was trading at 12 lakh, you would have had to wait three years to break even as the price of the crypto token crashed .
But if you had sold the asset when its value fell nearly 80% in 2019, you would have seen near-total capital destruction.
Imagine you had managed to keep your nerves, the return on your 2017 investment would have now been worth around 150%.
However, if you had the opportunity in 2017 to invest the amount (`50,000) in Bitcoin in a staggered manner like in mutual fund SIPs, the return would have been 350%.
This additional growth in yield would have been due to recurring investments in crypto, regardless of market conditions. Systematic Investment Plans (SIPs) in equity mutual funds also follow this principle – the stock market cannot be timed, so it’s best to keep investing consistently.
Bitcoin’s roller coaster can lead to extreme losses or profits depending on when one enters the market. There are several avenues for investing in crypto, including buying direct, exchange-traded funds (ETFs), and interest-bearing products, which this column has explained over the past few weeks. SIP-like products are another way to invest in virtual assets – aiming to use volatility to one’s advantage.
While some startups call these products SIPs, others use terms like “recurring purchase plan.” However, investors should be careful as these products are unregulated, unlike mutual fund SIPs, which are supervised by Sebi.
No need to time the market
Crypto is a 24/7 market and it is nearly impossible to track all the time. Industry players said there is a growing demand for SIP-like products from customers who want a long stay but are opposed to day-trading.
“Investing through the SIP channel automates the discipline part of wealth building. It also removes the timing element of the market and helps averaging dollar costs,” said Edul Patel, CEO and co-founder of crypto investment platform Mudrex, which launched a SIP-like product. last week. Startups that have launched similar products include CoinSwitch Kuber and Bitbns.
Dollar averaging involves investing a fixed amount of money in a fund, stock, or crypto, at regular intervals ignoring fluctuations in the value of the asset. This results in buying more assets when the cost is low, thus reducing the average cost per unit in the long run. Staggering the investment also reduces risk.
How to invest
You must open an account with a crypto exchange or an investment platform that offers SIP-type products. After submitting KYC (know your customer) details online, one can load money into the platform and start a SIP in any virtual asset like Bitcoin or Ether. Some companies offer SIPs in a basket of tokens to help those who don’t track crypto assets.
“Transactionally, the process is similar to mutual funds. The difference being the concept of cut-off times in equity mutual funds. Cryptocurrency being a 24/7 market has no cut-off time,” Patel said. He added that in the back-end, Mudrex sends the orders to partner crypto exchanges, which then fulfill the market orders.
Although monthly investing is a common occurrence in both crypto and traditional SIPs, it is also possible to have a daily crypto SIP due to the extreme fluctuations in their prices. Crypto exchanges typically use UPI for automated payments.
Unregulated, but taxable
Finance Minister Nirmala Sitharaman had announced a 30% tax on crypto gains in the budget, which will come into effect from April 1. Although this decision was seen as an acceptance of crypto investments, there is still no legal clarity in the absence of a law. .
In the absence of regulatory protection, crypto backers should seek expert advice before making investment decisions.
Recently, the Advertising Standards Council of India (ASCI) introduced guidelines for the advertising and marketing of crypto assets in which companies were prohibited from using the words “currency”, “securities”, “custodian” and “custodians”. because consumers associate these terms. with regulated products.
Visit www.TimesDecrypt.com for more crypto updates
