The Art of Investing Through SIPs

SIP

Are you worried !!! SIP of last 3 years not performing? What one should do in volatile markets?

Investors have reasons to be happy if SIP is not generating returns, Amidst Volatile Market…One is Accumulating Equities at lower levels…

The very objective of SIP Investment is a benefit of Rupee Cost Averaging…When Equity Market is Range bound or in a corrective phase, an investor actually is accumulating more units of the same scheme…

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There’s an old Wall Street joke. A Newcomer asks a Veteran, “How do I make money on the stock market?” The old master replies- “that’s the simplest thing, Buy low, sell high.”  So the young man asks, “Yes, but how do I do that?” The reply comes, “That’s very difficult. It takes a lifetime to learn.”  Not a great joke, but rings true. The most common interpretation of ‘buy low, sell high’ is to buy when the markets have fallen.

So to understand this better let’s just ask ourselves a question,

When do you buy more or most?

  1. When you get your favourite or desired product at a discounted price?
  2. When you get your favourite or desired product at market price?

Most people will answer “a”, reason being, they are getting the things they wanted on discount, they are paying much less than the original MRP of the product.

SIPs generating Negative Returns…Matter of Joy…Why…read on

CRISIL-AMFI report clearly indicates that the probability of generating more than 10% return is 97.5% in 10-year time frame.  In fact there are funds which have generated over 26% returns in 10 years.

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If the cause of low or negative returns is the overall market sentiment or underperformance in some of the fund’s holdings, then it is wise to wait for the storm to pass, till the market fluctuations stabilise, before making a hasty decision. Fund managers are also bound to move around allocations to reduce losses.

 

It’s an interesting analogy that SIPs invested during the period 01.01.2010 and 31.08.2013 (approx. 3 years) were sporting negative returns.  Investors if continued for another period of 2 years, could have ended up in making double-digit returns.  Meaning investors who pulled out in 2013 not only booked losses but also lost Opportunity to recover losses and make money.

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Looking ahead at 2020:

Analysts are optimistic about the broader market conditions in 2020, owing to timely Government intervention to Boost the Economy, Favourable market forces and the changing dynamics in the global political and economic spheres.  The Indian economy shrank 23.9% year-on-year in the second quarter of 2020.  As per recent Monetary Policy, the MPC projects headline CPI inflation at 6.8% for 2QFY21, at 5.4-4.5% for 2HFY21 and RBI expect real GDP growth in FY2021 to be at -9.5%.

 

It is suggested that investors don’t stop their existing SIPs in 2020 due to valuation concerns or the rough ride that the small-cap and mid-cap segment saw in 2019.  Again, continuing with SIPs during the market downturn will allow investors to accumulate units at lower prices and thereby, benefit from rupee cost averaging. In fact, investors with investible surpluses should top-up their existing SIPs with lump sum investments during steep market corrections. This will help them achieve their financial goals sooner.

Stay focused on the long term, for as market cycles go, this too shall pass

 

 

Author: Midas Finserve

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