“Is it the right time to invest?” This is the most often asked question while planning to invest in equity markets. What has surprised me is that this question is asked even while investing using the Systematic Investment Plan (SIP) route. This article analyses the impact of market timing while initiating your SIP investments.
During these two years, 2008 and 2009, equity markets in India saw a steep volatility followed by the recession in the US economy. On January 8, 2008, the sensex peaked at the then all time high at 20,873 points and very soon the sensex fell to 8,160 points, March 9, 2009 to be precise. That was a drop of 60% within just 15 months. The key question in the mind of the investors is “what would be the impact if one had started SIP investments on those two extreme dates and continued his/her monthly investments? How significant would be the difference in returns in both these cases?”
As you would notice from the above data, the SIP returns would certainly be different for the SIP investors in the short run. However, as you stay invested over years, these return differences tend to narrow down and are almost eliminated in the long run. Here SIPs as a vehicle act as a catalyst in mitigating the risks arising out of market volatility. In trying to attempt to “time” the market, one will miss out on the bigger picture: One may stay out of a bull run or may enter a bear phase but one can never accurately predict how the market may behave in the future. Investing at regular intervals ensures that one is invested both at the highs and the lows of the market and make the best of an opportunity that is otherwise difficult to predict.
In conclusion, SIPs enable investors to ride both the bull and the bear phases of the market. Any investor who invests regularly through the SIP route is more likely to create wealth in the long run. No wonder, you would hear the phrase from several successful equity investors - It is the ‘time’ in the market that matters and not ‘timing’.
Suraj Kaeley is a senior fund industry professional