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There is no good or bad time to do SIPs. A recent study released by WhiteOak Capital Mutual Fund shows that SIP started during market peak and bottom generates similar returns.
While the percentage return is marginally higher for SIPs started at the bottom of the market cycle, the absolute gain in rupee term (wealth creation) is far higher for SIPs started at the top of the market cycle, shows the report.
The report also stated that, “Even the marginal difference of % return goes away over the long-term, irrespective of whether you started at the top or bottom.”
However, delay in doing SIPs can hinder wealth creation journey of your clients. It further added, “. The ‘Cost of Delay’ of starting SIP late can be huge over the long term. The longer the market takes to reach the bottom, the higher the ‘Cost of Delay’, keeping all other things constant.”
The report illustrated its findings numerically as below.
The above table showcases an investment summary of two investors, one who started a Rs. 10,000 monthly SIP at the top of various market cycles and the other who started investing at the bottom. Notably, the table covers long-period data of S&P BSE Sensex TRI (last 27 years) and considers all those periods when equity market has fallen more than 20% from its top.
For example, for someone who started a monthly SIP of Rs. 10,000 in S&P BSE Sensex TRI during January 2008 i.e. at the peak of market cycle (row 6 of the above table), as on September 30, 2023 the total investments would be Rs. 18.9 lakh and its current value will be Rs. 58.5 lakh with an XIRR of 13.2%.
