This story is fitting for a new as well as an intermediate SIP investor. And with SIPs to the tune of Rs 14,000 crore being pumped into the market, we thought the timing was right to know more about SIPs too. So, let’s get started.
1. The best time to start SIP is now
If you have heard this before, skip to Point two. But those who haven’t or are currently in the start-now or start-later confusion, here’s why you should not delay your SIP further: the markets are in constant flux; something or the other keeps happening. If you keep procrastinating, nothing good will come out of it.
On the other hand, SIPs, by design, are meant to help you navigate the ups and downs of the market, thanks to rupee cost averaging.
Rupee cost averaging? Here, your SIPs buy more stocks when they are available at a lower price and buy less when stock prices become expensive. That’s what all investors want, right?
Sure, you will go through a rollercoaster of emotions, as seen in the table above, but you will come out the other side better than you were before, as seen in the above Sensex chart.
Hence, start your journey now.
2. Never pause or stop your SIPs at a market high
Stopping or pausing your SIPs should be for valid reasons and not because you wish to be clever with your money.
Let’s assume both Mr A and Mr B have been investing in HDFC Flexi Cap Fund with a monthly SIP of ₹10,000 for the last 15 years. Mr A keeps investing irrespective of how the market is performing, whereas Mr B pauses his SIPs for three months whenever the Sensex hits an all-time high. Care to guess who is cleverer? Let’s find out.
Too clever for your own good?
Pausing SIPs at market high may yield marginally higher returns, but at the expense of a smaller corpus
- Monthly SIP: Rs 10,000 for last 15 years
- Mr A never stops SIP
- Mr B pauses SIP for three months during Sensex highs
Mr B earned a mere 0.13 per cent higher returns for being clever. Worse, he invested Rs 4.5 lakh less and ended up with a lower corpus by 11.46 lakh.
Therefore, you win no points for trying to be clever with your SIPs. Just keep at it; stay consistent.
Plus, Mr B will always have to correctly guess the market’s future movement. What if he, like all of us, gets it wrong most of the time? The final returns would be even lower!
3. Don’t try to be tactical with your SIP amount
Let’s say you keep doing an SIP of Rs 10,000 for 10 years. It will not make any meaningful difference whether you increase your SIP to Rs 15,000 when the market crashes or decrease it to Rs 5,000 when the markets rally.
That’s because your SIP amount gets increasingly insignificant compared to the corpus you have accumulated in the long run. See the table below, and you’d observe how the weight of an SIP instalment reduces over time.
4. Be patient with your SIPs. Time in the market is important
The most important factor with your SIPs is time. The more time you invest, the bigger your corpus will get. Let’s see how much wealth you can create by 60 if you start a Rs 10,000 monthly SIP at the age of 25 years, 30 years and 35 years.
The power of time in the market
Start early and witness the magic of compounding in your later years
The numbers in the above box tell you everything. The younger you start, the better it is.
5. It matters when you need the money
Timing matters for SIP investors.
Say, you kept doing your SIPs religiously, and when it was time to withdraw, the market crashed. Your overall returns would be hit too.
But if the markets rally, so would your overall wealth, as seen in the table below.
Climax gone wrong
It can all go wrong if you plan to withdraw when markets crash
SIP: Rs 10,000 per month in HDFC Flexi Cap Fund (Regular)
Duration: 10 years
Fortunately, there’s a solution to ensure your hard-earned investment is not wrecked at the last minute because of the market: Systematic withdrawal plan (SWP) and proper asset allocation .