The Indian market is going through a rough patch with Nifty wiping off 4.9 percent and Sensex tumbling 4.54 percent in July.
The volatility induced by global and domestic headwinds such as economic and consumption slowdown, mounting US-Iran tension, consistent FII selling, unfavourable budget announcements and sub-par earnings have kept investors at bay.
However, experts see the current market scenario as an opportunity to build a long-term portfolio, taking the SIP route.
"The existing volatility in the market will likely stabilize in the next 6-8 months as the benefits from the government initiatives will lead to demand growth and in turn lead to economic growth," said Gautam Kalia, Head of Investment Products at Sharekhan by BNP Paribas.
He added that SIPs should be the preferred investment vehicle as it will help investors average out the volatility by buying more number of units at a lesser price.
"SIPs help you take advantage of rupee cost averaging in an automated manner. It helps you reduce the average cost per share along with the volatility in the markets over a period of time and increases the profit when the markets start rising," he added.
While the data shared by Sharekhan shows that SIPs have given moderate returns in the last one year, the real opportunity lies in the largecap, and largecap and midcap space, with SIPs in select funds even surpassing the returns given by benchmark indices in the same period.
In the last one year (up to July 1), Nifty has gained 11.33 percent while Sensex has surged 11.2 percent. In comparison, select largecap funds have returned up to 18.3 percent when invested via SIP.
According to experts, largecaps should be the preferred space for risk-averse investors as the companies in this segment tend to be less volatile given their strong financials and valuations.
"Your core SIP must be in a largecap fund. Then you can have multicap funds. And then the midcap funds come into the picture. One should typically have 30 to 40 percent investments going into largecap funds. And then the rest of the investments follow. Even if you have a very high-risk appetite, your investments in the midcap space should not exceed 30 percent to 40 percent," Shyam Sekhar, the founder and chief ideator at Chennai-based iThought, told Moneycontrol.
Experts also gave investment via SIP a pass over lumps um investment as not only it is more affordable, since you invest small amounts at predetermined intervals, but also because the returns are based on ending values and the extent to which NAVs have dipped during the SIP period before recovering. Whereas, lump sum returns depend on the starting value and ending value.
"Markets had peaked earlier in Aug 2018. Hence lump sum investors calculating 1-year returns would be disappointed while SIP investors had the advantage of averaging the cost," said Deepak Jasani, Head - Retail Research, HDFC securities.
On comparing the one-year SIP returns with lump sum returns as on May 31, one can see that returns given by SIP have far exceeded those given by lump sum investment.
However, if we compare similar returns as on June 30, the outperformance of SIP returns has fallen considerably largely because the Nifty ending value has fallen 1.2 percent and the SIP ending in June bought the last instalment (on June 1) at peak values.
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