BackMutual funds SIP: Why market sentiment doesn't matter for an investor — explained
SIPs started at the top resulting in higher absolute gains in rupee term
PremiumMumbai: In continuation to WhiteOak Capital AMC’s earlier SIP report titled, ‘SIP Analysis Report’, the company has come up with further insights on "Which is better, starting SIP at the Top or Bottom?"
The report is based on a detailed analysis using long-period data of S&P BSE Sensex TRI (last 27 years) and considers all those periods when the equity market has fallen more than 20% from its Top. The below table refers investment summary of two investors, one who started a ₹10,000 monthly SIP at the Top of various market cycles and the other at the Bottom:
How to read the above table:
For example, if someone would have started a monthly SIP of ₹10,000 in S&P BSE Sensex TRI during January 2008 (at the peak of market cycle six as per the above table), as of 30th September 2023, they would have invested ₹18.9 Lakh and the current value of this investment would have been ₹58.5 Lakh at an XIRR of 13.2%. Similarly, if somebody had started this SIP in March 2009 (at the bottom of market cycle six as per the above table), as of September 2023, they would have invested ₹17.5 Lakh (Rs. 1.4 Lakh less than earlier investor) and the current value of this investment would have been Rs. 49.8 Lakh (Rs. 8.7 Lakh less than earlier investor) at an XIRR of 13.3%.
Key findings from the report
1) It is interesting to note that while the % return is marginally higher for SIPs started at the bottom of the market cycle, the absolute gain in the rupee term (Wealth Creation) is far higher for SIPs that began at the top.
2) 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.
3) Even the marginal difference of % return goes away over the long-term, irrespective of whether you started at the top or bottom (refer to the return difference for SIPs during the first 6 Market Cycles, i.e. in long-term).
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
Milestone Alert!Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.
