Timing SIP Investments

Mutual fund investors, especially those who are new to participating in a mutual fund scheme, may be alarmed by the status of the stock market right now. Young investors may not have experienced this kind of market volatility, and it has made them wonder if they should stop investing in mutual funds and withdraw their money from the stock market. Making a hasty decision, though, could mean that the years of work you have put into saving will actually be for nothing. 

Making an informed choice is essential to ensuring that your investments are successful and that you don’t lose out on any of the market’s advantages. It might be very difficult to handle the finances in a falling market. SIPs (systematic investment plans) appear to stop and redemptions seem to increase, both fairly prematurely, during volatile times. According to behavioural experts, investors experience losses more strongly than gains. When the markets enter a bear phase, people frequently cancel SIPs or redeem their investments to avoid suffering any further losses. But if you are a long-term investor, volatility is your friend.
 

Investing the SIP Way
To instil financial discipline through frequent investments is one of the main benefits of investing through the mutual fund SIP route. This fundamental goal is defeated if you stop your SIP in a declining market out of fear. Your wealth will decrease if you pause or stop your SIP, and you won’t be able to reach any financial objectives you may have set for yourself. Avoiding market timing is a key factor in choosing the SIP method when investing in the equity markets

However, doing so is what happens when you quickly pause or end your SIP. Perhaps most crucially, you should invest in stocks via the SIP route with a long-term outlook. This is due to the possibility of long-term inflation-adjusted gains offered by stocks. As a result, when you stop your SIP at a time of market volatility, you are in fact adopting a short-term perspective. This causes you to depart from any long-term financial objectives you may have set and reduces your return potential and long-term possibilities for wealth creation.
 

It is important to consider whether the performance of your fund indicates a fundamental shift that would call for you to stop your SIP in the stock market or redeem your contributions.
 

"How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case." — Robert G Allen, Author

What if the market were to be in a bad mood, as is the case right now with the depreciation of the rupee, rising crude oil prices and potential pandemic-related developments, among other things? It is usually a hard and emotional period when you are investing directly in stocks via SIP and the market experiences a bear run – something that is difficult to accept psychologically.

Understanding SIP Limitations
If you are unsure of when to discontinue making SIP investments, let us assure you that there is never a good moment to do so. The worst financial mistake you can make is to stop your SIP investments during a market slump. By preventing the chance to buy more units as prices fall, it undermines the fundamental point of SIPs. The best juncture for SIPs to benefit you is during a downturn. SIP investments typically perform better in a volatile market environment. You end up purchasing more units of the fund at a lower price as the market reaches lows and the NAV (net asset value) of the fund decreases. Since you now own more units, your SIP investments may eventually generate higher returns when the market strengthens.

Rupee cost averaging is a miracle that some people consider to be the eighth wonder of the world. Therefore, you wouldn’t be able to take advantage of this fantastic chance if you stopped your SIPs during this time.

With the help of two hypothetical situations—a bull market and a bear market—let’s comprehend this. In April 2019, Ajay Singh begins a SIP investment of ₹10,000 each month. Let’ see how this scenario unfolds:

Ajay has invested ₹50,000 over the course of these five months, acquiring 1,750 units. This is so that more units might accumulate when the NAVs fell.

The fund’s NAV rises from ₹20 to ₹50 in this phase, but Ajay has only accumulated 1,500 units. A fund’s NAV should always go up over time in an ideal world. Therefore, holding more units now will assist investors get a better payout when they redeem their shares. You shouldn’t let the state of the economy prevent you from investing in mutual funds. The market still has the capacity to emerge from the ashes, as shown by a number of indications. Your investments are sure to shine when it occurs. All you have to do is create a portfolio with the most diversification possible.

Preventive Measures in a Falling Market
During a market slump, you should avoid doing a number of things, such as:
■ Selling in a panic as stock prices decline
■ Trying to time the market
■ Avoiding fresh debt n Ignoring your financial plans and objectives.

While market downturns may seem frightening, take a deep breath and remember that they will pass. The long-term success of your whole investing strategy may depend on this. As said by the ‘father of value investing’, Benjamin Graham, “Successful investing is about managing the risks, not avoiding it.” If you stop your investments in SIP now, or worse, redeem it, you will turn your momentary loss into a permanent one.

Reasons for Continuing SIPs
Even if the short-term financial outlook appears to be so unstable, the long-term structural growth appears to be unhampered. Additionally, this is a wonderful moment for stock investors to start investing because you will be able to get more units for the same price due to the slow market trends. However, it is advised that for equities investing, novice investors should maintain a ratio of 65:35 between Large-Cap and Mid-Cap stocks. A decent ratio ensures that the funds are evenly distributed, thereby guaranteeing that you will still be profitable even if one of them fails.

Your large-cap assets can add some stability to your investment portfolio, while your Small-Cap and mid-cap investments may need a few bumps to maintain balance amid the patterns in the market that seem to be changing constantly. However, it is essential to speak with your financial advisor before making a final decision about your mutual fund SIPs. It is obvious from looking at the debt market that the money market yields have decreased. According to the data, 10-year government bonds have lost 11.02 per cent of their value since January. Its decline since June is 6.3 per cent. Debt Funds typically perform well when both the period of growth and inflationary environment are modest. 

This is because individuals then anticipate switching to safer investment options, which increases demand for bonds and results in financial gains for those who invest in debt funds. The market’s condition indicates that now is a great time to keep up your SIP. Since the market is going through a difficult time, it is a fantastic time to add more investments to your investment portfolio by buying units at a discount. This can assist you in maximising your wealth over time, which is ultimately the goal of a mutual fund programme. The formula is rather straightforward. You purchase fewer units when the market is strong since their price is so much lower. When the market is lower, you have the option to buy more additional units. 

SIPs have two straightforward objectives: first, they want you to develop the habit of investing regularly, and second, they want you to keep investing even when the market is slowing down. Both of these elements are essential for keeping a strong investing portfolio. It is advisable that you stick to the original investment plan and avoid deviating from it. You are undoubtedly already aware of rupee cost averaging as one of the advantages of a SIP. This implies that when markets are weak, more units are bought, and when markets are strong, fewer units are bought. As a result, by maintaining your investment, you not only get cheaper acquisition costs but also volatility protection.

SIP Contributions at Record High in India
A record-breaking ₹12,976.34 crore in SIP contributions were made in the month of September. Over the preceding month, there was an increase in SIP contributions of ₹282.89 crore. Despite ongoing increases in retail inflation both globally and in India, mutual fund portfolios have reached an all-time high of ₹13.80 crore (₹13,80,87,328). Additionally, in the month of September, the retail mutual fund portfolios achieved a record high of ₹10.99 crore (₹10,99,66,677).

For the month of September 2022, there were 58.37 million SIP accounts (58,377,684), which is an increase of 1.12 million (1,216,207) accounts over the previous month. The growth in the amount of SIP collected in August indicates that ordinary investors are approaching their mutual fund investments with discipline, which is positive news for the Indian market and economy. It’s interesting to note that there were 10,99,66,677 portfolios under retail schemes such equity, hybrid and solutionoriented schemes. Over the prior month, this figure climbed by 0.94 per cent. In the categories of income and debt, growth and equity, hybrid and solutions-oriented schemes, a total of 17 new schemes were introduced. The total amount of money raised through the introduction of four closed-end schemes was ₹8,374 crore.

Future of SIP Investments
In various market environments, SIPs have demonstrated a consistent, disciplined performance strategy. SIPs have a bright future in this nation and will continue to exist. The methods used to make investments in SIPs may evolve and change over time. Service providers will be kept busy to deliver a competitive and superior portfolio as conviction in this investment vehicle grows. Purchasing additional equities during a stock market decline may result in a hidden profit.

Yes, you did read that right. Opportunistic investors realise it’s better to buy goods or invest in money at a lower price (bear market) and sell them or redeem them when the market is up rather than when the stock market is down. Maintain your asset allocation and seize the market’s decline as an investment opportunity. Please keep in mind, though, that this bad market won’t persist forever. You will need a well-diversified investment plan.

Conclusion
SIPs offer a number of advantages as investing instruments. Investors have a wide range of possibilities to improve performance thanks to the market’s ongoing evolution. SIPs can be a great approach to generate the best profits and build wealth while maintaining a long-term investing perspective. Additionally, setting up a systematic investment plan (SIP) for long-term investments can be a real efficiency booster for rupee cost averaging and compounding.

SIPs are generally a great investment tool because they let you invest with lower sums. You can use SIP to invest in a selection of stocks and ETFs based on a sector, subject, or idea. It’s best to hold on to your SIP investment amid a falling market. Even while market gyrations can be unsettling, take a moment to calm down and keep in mind that this too shall pass. In the long term, it can be the most important component of your entire investment strategy.