Investors in the stock market often wonder about the right time to invest. Many believe that investing should be avoided when the market is high and that a market downturn presents a better opportunity. However, a recent study suggests a shift in this thinking. A study by Motilal Oswal Mutual Fund reveals that the timing of the start of a SIP, or Systematic Investment Plan, does not significantly impact long-term returns. The key factor is the duration for which you choose to remain invested.
SIP: Investing a Little Every Month
The biggest advantage of SIP is that it involves investing a fixed amount every month. This mitigates the impact of market volatility. When the market is up, fewer units are acquired, and when it's down, more units are acquired. This is known as Rupee Cost Averaging.
The Period of 2000-2005: When the Dot-Com Bubble Impacted the Market
In 2000, the dot-com bubble affected economies worldwide. During this period, the Indian market also experienced significant volatility. On February 24, 2000, the Nifty 500's PE ratio was 37.26, which was a high level. By September 21, 2001, it had fallen to 11.58, indicating a significant market decline.
Surprisingly, those who started a SIP in February 2000 received an annualized return of 15.47 percent. Those who started a SIP in September 2001 received an annualized return of 15.55 percent. Thus, regardless of the market conditions, both groups benefited almost equally.
2006 to 2010: When Recession and Recovery Alternately Affected the Market
During this period, the market witnessed a sharp rise followed by a sudden recession. The global economic recession of 2008, in particular, severely impacted the market.
Those who started a SIP in January 2008 received an annualized return of 13.97 percent. Those who started a SIP in October 2008, when the market was at its lowest, received an annualized return of 14.36 percent. The difference was marginal, despite the vastly different market conditions.
2011 to 2015: When India Was Included in the 'Fragile Five'
In 2013, India was included among the five countries considered economically vulnerable. This caused a setback for the Indian stock market, and foreign investors began withdrawing funds. However, the general elections in 2014 and expectations of a new government revived the market.
Investors who joined SIP in August 2013 received a return of 14.89 percent. Those who started a SIP in August 2015 achieved an annualized return of 15.26 percent. Thus, those who started at both times received almost the same benefit.
Benefits of Investing for the Long Term
These examples clearly demonstrate that the real benefit of SIP is realized when investors maintain patience and remain invested for the long term. The study also indicates that starting a SIP at market highs or lows does not significantly impact returns if the investment is made for the long term.
SIP: The Most Convenient Method for Investors
The biggest advantage of SIP is that it does not require a large sum of money to be invested at any one time. Investment can be started with a small amount every month. Additionally, it instills discipline in investing, and investors are less likely to change their decisions out of panic due to market volatility.
The Story of Similar Returns in Different Market Phases
The Motilal Oswal report compares three different economic periods: the dot-com crash and its recovery, the global recession and subsequent market recovery, and India's inclusion in the 'Fragile Five.' In all three periods, despite varying circumstances, SIP investors received roughly the same annualized returns.
Giving Time is More Important Than Timing the Market
The report also reveals that trying to time the market is often futile. Many investors postpone investing, thinking that the market is currently high and they will invest later when it falls. But history shows that such opportunities are never certain. The very nature of SIP investment is that it supports you in every phase of the market.
