It is the best time to start SIP

August 23, 2011   ·   0 Comments

Historically, whenever the stock markets are down, Indian investors have never invested in equity. This time it is different.  Over the coming months, a good number of people are going to keep investing steadily in equity every month. This is the core logic of SIP investing – keep investing when prices are down so that you gain when they turn around. This is the buy-low, sell-high action that SIPs deliver automatically. Investors who will continue their monthly investments will eventually realize much higher gains if they stick with it long enough. Each rupee that they put into an equity fund now, at lower NAVs, buys them more units. When the time comes, the cheaper units would have delivered much higher returns, boosting the total returns they get.
www.stockssavvy.comFor mutual fund investments, there’s an interesting aspect to the current bear cycle that wasn’t there earlier. Unlike earlier, Indian mutual funds are receiving significant regular inflows through SIPs ( systematic investment plans). Based on the numbers that I’ve gleaned by talking to various people in the industry, about 1,500 crore is flowing in through the SIP route into equity funds every month.
I do realize that this not a great level to declare significant – for a potential market of our size, it should be ten times this figure. However, it is at least much larger than it used to be till a short while back. The significance really comes from the experience these new SIP investors are going to have over the next couple of years.

For short term traders, these are very dangerous and uncertain times. But for long term investors, its best to shrug off the fatigue and get to buying some front liners, with a 2-3 years horizon at the current, extremely attractive valuations. Buy only when the market dips.

Markets are at 2 year lows. Will it sustain or go down again? No one knows. It is simply not possible to time the market accurately. If it was that easy all the fund managers would be sitting at home with their fortunes, isn’t it. So, how do you decide when is a good time to start investing in a SIP? The answer is simple. Anytime is good, If you can maintain the discipline of making regular monthly investments.. But why this time will turn out the best for you, markets have corrected 25% from their peak. Even if you believes some more pain in the system, starting a SIP at this point means one is buying at lows. Predicting a bottom & thinking of investing at that point is as pernicious as predicting the markets to never correct in Bull Run like Gold has been predicted to go higher only. Accumulation when the markets are at lows will yield excellent returns in coming years.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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