At a time when there is a debate raging over small and midcaps valuations, Whiteoak Capital AMC in an note has advised investors to ensure they remain invested for a longer duration, and not worry about whether the SIP is starting at the peak or trough of a market cycle.
The note goes on to cite an example of how this is possible.
If an investor started a monthly SIP of Rs 10,000 in BSE Sensex TRI during January 2008, peak of that market cycle, then he would have invested Rs 20.4 lakh till December 31, 2024 and the current value of this investment would be Rs 72.1 lakh with an Extended Internal Rate of Return (XIRR) of 13.5 percent.
On the other hand, if he investor started the same SIP in March 2009, which was the bottom of the cycle, he would have invested Rs 19 lakh till December 31, 2024 and the current value of the investment would have been Rs 61.7 lakh with an XIRR of Rs 13.6 percent.
Even though the first investor started near the peak of the cycle, Rs 10.5 lakh more were generated compared to the second investor, simply because of starting earlier and invested longer.
Read More: ICICI Pru’s Naren asks investors to protect gains, says mid, smallcaps overvalued
The note added that even though the returns in percentage is marginally higher for SIPs started at the bottom of the market cycle, the gain in absolute terms is far higher for SIPs which start at the top.
The note adds that the 'Cost of Delay' of starting SIP late can be huge over the long term and the longer the market takes to reach the bottom, the higher the 'Cost of Delay'.
What Other Experts Say
In the ongoing debate over whether one should continue their SIPs even at current market valuations, Moneycontrol spoke to experts on what should investors keep in mind, before starting an SIP.
One common suggestion was that the sooner one starts the SIP, the more time one gets to grow wealth through compounding. Anand Rathi's Shweta Rajani explained, “The first step is to understand your SIP and set clear goals. Identify what you are saving for, whether it is a 3, 5 or 10-year goal, and determine the minimum SIP amount required to reach there. Second, and the most important suggestion, as per experts was maintaining discipline. One of the biggest challenges in SIP investing is staying committed through the ups and downs of the stock market. Investors, they explained often get tempted to stop or adjust their SIPs during downturns, or when they feel their returns are not as expected. “Maintaining investing discipline is crucial. While missing a SIP payment occasionally is not a major issue, setting up a perpetual SIP ensures that it continues uninterrupted. Another important practice is to step up your SIP amount every year. Even a small increase of 5 percent annually can significantly improve long-term returns by keeping up with inflation and income growth,” Rajani said.
Shyam Shankar, fund manager at ithought PMS, in a post on social media platform X said that maintaining discipline in a SIP is the most-underrated and under-appreciated aspect of mutual fund investing.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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