Generally, when the Equity market rallies, it brings good news for the investors, however, different investors have different concerns with the market rally.
Investors who might be planning to invest in mutual funds, back out from their plan for a while excusing that markets have rallied, and trending high, they will start their SIP once the market again trends low. While some investors think that the market is trending at its all-time high, that means this is the best time they can take out their investment with a good benefit.
Well, investors have their own concerns but the root of all these are the same and that is the fear of losing, the fear of “what will happen if they invest now and the market falls?”.
Some investors do not start their investment as they fear that they will lose their investment value if the high trending market will fall tomorrow, while others do not want to stay invested more as they think that they will not get the scenario of this high trending market.
Here for a while, we can understand the concern of investors who are planning to invest via Lump-sum or are already investing through lump-sum, but the one who has planned their investment with SIP has already the game in their hands.
This is because experts take Equity market fall just after you start SIP investment in Equity funds as the best start of the growth of your investment, and you will end up making good returns over longer time horizons!
Let us understand how!
Equity SIPs Work Better During Temporary Declines!!
Equity markets in the long-term have given good return and this picture is much clear through their history records, however, this is also true that in their long journey they had gone through multiple numbers of short-term market declines.
You might wonder but this is true that temporary market falls are the real reason why Equity SIPs work well in the long run.
All this is because of the unique feature that SIP in equity funds offers its investors and that is Rupee Cost Averaging. This helps an investor consistently buy units in a fund every month irrespective of the market conditions. Whenever there is a temporary market decline, the SIP buys us more units and vice versa.
Well, you might have heard this theory much more times, so here the question is do you follow this strategy, that is do you invest via SIP without taking into consideration the trend in the trend in market.
The reason behind this might be that to date you have only heard about this benefit of SIP but have not seen any live example. So basically, here I will illustrate some examples that will help you understand this benefit in a more accurate way.
What Happened To SIP’s Started Just Before the Dot Com Bubble in 2000?
We all are aware with the crash market went in 2000 after the fall experience by Double Com by 56%, well that was a drastic fall.
A SIP that started on 11-Feb-2000 just before the Dotcom bubble burst did not fare well in the short term (0 to 3 years). Of course, nothing to be surprised about. But here comes the surprise – the 5Y SIP returns were a whopping 23% (compounded annualized returns)!
The Equity SIP performance eventually improved when markets recovered and the investment went on to deliver phenomenal returns – 34% CAGR over 7 years and 21% CAGR over 10 years.
What Happened To SIP’s Started Just Before The Global Financial Crisis In 2008?
The same is true for the SIP started just before the Global Financial Crisis. While the near-term performance was impacted, the 3Y SIP returns were a whopping 23% (compounded annualized returns)! The same SIP went on to deliver 15% in the next 7 years and 13% in the next 10 years.
Let Us Sum It Up!
It not that every SIP in the long-term has well-performed its portfolio, there were some instances when the annualized returns dipped below 10% in the long run because the portfolio met with the next crash. So basic thing is that your SIP’s cannot work as a shield for your portfolio against crashes in the market. But they can take the advantage of the occasional temporary market falls by accumulating more units when the prices have declined.
And when the performance of the underlying index improves, the performance of your Equity SIP will improve along with. So, if you are a person who is still confused and waiting for the right time to invest in the market, hope you have understood that timing the market to invest is worthless!
The best time to invest is RIGHT NOW, that too via SIP in MUTUAL FUNDS!!
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).