Equity markets saw a steep correction in September and it is continuing this month as well. Majority of the stocks and sectors stumbled with fears of rupee depreciation against the dollar, rising crude prices, current account deficit and hardening interest rates. Investors are worried. But new investors participating in equity mutual funds through the Systematic Investment Plan are least worried. And the reason is they are only buyers. They buy mutual fund units of equity funds every month. And this correction is best suited for them as they will be accumulating more units. It is proved that SIP investors make the best returns in long term mainly due to two features - Rupee Cost Averaging & Power of Compounding.
I advice investors to go for SIP for their long term financial goals. And generally it would be for minimum 10-15 years. So the first half of the duration is our buying period. We buy at various levels and it is good if markets are volatile. Due to market corrections, we accumulate more units each time when the price of the units is lower. Our purchase price gets averaged to the best possible extent. We may not make any profits in the initial few years. But we accumulate units for future profits. That's called Rupee Cost Averaging.
By this time, the compounding would have started. Markets don't stay low or high always. It moves like a ocean wave in the short term. But if you see the long term, its always a straight line trending upwards. When markets move up, all the units purchased at lower prices suddenly starts growing significantly. Every unit starts gaining phenomenal profits for you. The unit prices would grow 4 to 5 times of the purchase price over a period of time. That's called power of compounding.
Let's take an example of last 15 years. In this period, we witnessed steep market corrections as well as big market rallies. In 2004, when Vajpayee Government lost the elections, markets fell by 842 points. In 2008, from its lifetime high Sensex crashed by 61% in 1 year during the global financial crisis. It bounced back by 157% in 1.5 years from there. In 2010, sensex corrected 28%. And bounced back by 96% in 3 years. There were many such smaller ups and downs in the market. Now again, markets are correcting. The downside from here may or may not be limited. But this too shall pass and markets will bounce back.
In the same 15 year period, Mutual Funds SIPs have delivered more than 15% compounding returns per annum. 15,000 rupees invested every month has become more than 1 Crore when the total investment was just 27 lakhs (over a period of 15 years, not at once). That's 73 Lakhs profits contributed by the market. Your contribution was just 1/4th of the goal. This happened to only those investors who continued their SIPs inspite of big ups and downs. Those who stopped or exited during fearful times burnt their fingers. Those who continued, created wealth.
So, there's no good time or bad time for starting a SIP. But starting a SIP during a volatile period like now is definitely a good time. So rejoice and take a plunge into equity now. Start your SIP into mutual funds today. Have a financial goal, select right mix of mutual funds, keep investing every month, patiently digest volatility and start your journey towards wealth creation. Rest, leave it to SIPs.
Srivatsa Hebbar
Inverika Investment Solutions LLP
I advice investors to go for SIP for their long term financial goals. And generally it would be for minimum 10-15 years. So the first half of the duration is our buying period. We buy at various levels and it is good if markets are volatile. Due to market corrections, we accumulate more units each time when the price of the units is lower. Our purchase price gets averaged to the best possible extent. We may not make any profits in the initial few years. But we accumulate units for future profits. That's called Rupee Cost Averaging.
By this time, the compounding would have started. Markets don't stay low or high always. It moves like a ocean wave in the short term. But if you see the long term, its always a straight line trending upwards. When markets move up, all the units purchased at lower prices suddenly starts growing significantly. Every unit starts gaining phenomenal profits for you. The unit prices would grow 4 to 5 times of the purchase price over a period of time. That's called power of compounding.
Let's take an example of last 15 years. In this period, we witnessed steep market corrections as well as big market rallies. In 2004, when Vajpayee Government lost the elections, markets fell by 842 points. In 2008, from its lifetime high Sensex crashed by 61% in 1 year during the global financial crisis. It bounced back by 157% in 1.5 years from there. In 2010, sensex corrected 28%. And bounced back by 96% in 3 years. There were many such smaller ups and downs in the market. Now again, markets are correcting. The downside from here may or may not be limited. But this too shall pass and markets will bounce back.
In the same 15 year period, Mutual Funds SIPs have delivered more than 15% compounding returns per annum. 15,000 rupees invested every month has become more than 1 Crore when the total investment was just 27 lakhs (over a period of 15 years, not at once). That's 73 Lakhs profits contributed by the market. Your contribution was just 1/4th of the goal. This happened to only those investors who continued their SIPs inspite of big ups and downs. Those who stopped or exited during fearful times burnt their fingers. Those who continued, created wealth.
So, there's no good time or bad time for starting a SIP. But starting a SIP during a volatile period like now is definitely a good time. So rejoice and take a plunge into equity now. Start your SIP into mutual funds today. Have a financial goal, select right mix of mutual funds, keep investing every month, patiently digest volatility and start your journey towards wealth creation. Rest, leave it to SIPs.
Srivatsa Hebbar
Inverika Investment Solutions LLP
