_*Sunday ki Pathashala*_ ●
*Knowledge is power.*
• *_Financial Literacy Series_*
23-Feb.-2025
A Note to SIP Investors (Not for Lumpsum & Market Timers)
Many
of you have started your SIP journey in the last five years. Data shows
that nearly 3 in 4 existing SIPs were initiated during this period.
Many who began investing in the aftermath of the pandemic have enjoyed
extraordinary and, in some cases, unbelievable returns. While the
long-term historical return for Indian stocks has ranged between 10% and
13%, some investors—particularly those focused on Small & Midcap
segments—have registered over 20% CAGR. Congratulations!
Equity
markets have corrected by about 10% to 15%, depending on the index you
consider. Similarly, the funds you invest in may have performed slightly
better or worse within this range. At this juncture, it is important to
remember three critical lessons:
1. The First Rule of SIP Investment: NEVER Stop
If
you start a SIP (Systematic Investment Plan) and never stop, you don’t
have to do anything else. You don’t need to follow expert opinions or
read reports (including #DSPNetra). By averaging your investments over
the long term, you automatically accept average valuations, average
returns, and average volatility. Ironically, most investors don’t even
achieve average returns due to emotional decision-making. SIP provides a
structured approach that removes the need for timing the market.
Stopping your SIP disrupts this compounding effect and negates its
mathematical advantage.
2. Past Returns Are Irrelevant to Future Performance
The
returns you have made (or missed) are in the past—they may or may not
be replicated in the next five years. Through #DSPNetra, we have
repeatedly emphasized that holding overvalued equity investments is
similar to owning bonds with stock-like volatility. Small & Midcap
segments have been expensive in recent quarters and are only now
beginning a mean reversion, with some way to go.
There
have been extended periods when Smallcaps, Midcaps, or even Largecaps
have delivered little to no returns. These rough patches often lead
investors to stop their SIPs. Consider an investor who started Dollar
Cost Averaging or SIP in Japan in 1989—could they continue investing for
nearly two decades with minimal returns? Probably not. But those who
did emerged better off than market timers and those who quit. (See Image
1 for instances where broader markets remained flat, yet SIPs delivered
results.)
3. Investing Has Been Gamified—Resist the Urge to Swipe Start or Stop
In
recent years, investing has been gamified—it’s now extremely easy to
swipe and invest in seconds. Unfortunately, this convenience has also
increased impulsive activity. Many investors, driven by adrenaline,
news, opinions, and rapid market movements, end up making frequent
transactions, which only increase costs and reduce returns. Do not
mistake the ease of investing for the ability to time the market.
4. If You Started a SIP Recently, Timing Is Irrelevant in the Long Run
For
those who started a SIP in the last year or are considering starting
now, remember: if you stay invested long enough—i.e., over
decades—timing becomes irrelevant. Take the case of Smallcaps. History
shows that even starting a SIP at market peaks, provided you focus on
quality investments, allows you to stay invested longer. Why? Because
initial low or negative returns help reset expectations, making it
easier to remain committed. Lower expectations = higher probability of
staying invested. (See Image 2 for data on SmallCap indices at recent
peaks.)
5. A Bear Market in NAVs Is a Bull Market in Units
If
you are leveraged, overexposed to equities, or if SIP forms an
insignificant part of your portfolio, these pointers may not be helpful.
However, for disciplined investors, even bad initial outcomes should
not deter you. When equity prices fall and NAVs decline, you accumulate
more units for the same SIP amount. Bear markets in prices are bull
markets in units. They allow you to accumulate more investments,
potentially leading to better long-term returns—provided your underlying
investments are sound.
Stay the Course. Happy Investing!
Source: Sahil kapoor DSP
Investments
are subject to market risk. Consult Your Financial Advisor (Wealth
Doctor) before Investing & Regularly for Portfolio Check-up...
*"Sunday Ki Pathashala" is initiative by: - Hitesh R. Pujara*
