Many investors also have the misconception that SIP should not be started when markets are trading at higher levels.
It is almost impossible to predict the market movement for short term. Markets may get overvalued, but still continue to move up due to higher liquidity or positive sentiments. Or there may be times when markets get undervalued & still they fall further.
Time spent in the market is more important, then timing the markets. Corrections are inevitable in stock market & they are bound to come. They spread panic in the short term but never last long in an ongoing bull market.
That’s why, it’s better to start investing as early as possible rather than wait for the correct time to invest.
Investing via SIP with higher time horizon helps in
- Reducing the volatility arising on account of stock market movements
- Averaging out the cost of purchase
- Benefiting from the Power of Compounding
One should always remember that SIPs shield the investor from market fluctuations with its systematic approach.
Below given is an analysis of SIP returns in Absolute terms under 2 different scenarios:
- Started SIP on 8th Jan 2008 when Sensex closed at 20873
- Started SIP on 9th Mar 2009 when Sensex nosedived to the levels of 8160
The above analysis shows that
- Starting an SIP in any market conditions will lead to substantial gains over long term
- Starting an SIP when markets were at peaks has helped investors to take the benefit of correction by accumulating more units when markets nosedived to the levels of 8160 on 9th March 2009.
To Conclude:
- Investor shouldn't place their SIP investment decisions solely on the basis of market levels.
- Investor should start & align their SIPs in equity funds to meet their long-term goals.
- SIP for a long period will help them to average out the purchase cost and enhance their returns.
- Start SIP for a minimum period of 5-6 years to take the benefit of the market volatility.
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