SIP Dilemma---pause or continue

 The phones begin ringing (as they always do) when markets become nervous.  The only answer sought by investors is

·        Should I pause my SIPs?  Or

·        Should I redeem and shift to cash and again reinvest when market stabilizes.

Market will find one or the other reason to justify the fall.

This time its tariff. The first casualty of a nervous market is SIP.  The anxiety over tariffs issue has knocked off approx. 4000 points from Sensex

The whole logic of SIP investment is that since you cannot predict market movements so you spread your purchases across time so you average out your cost of purchase. So, when you suspend your sip during down turns, you’re negating the very logic of SIP which is meant to turn volatility into opportunity.

SIP investment is meant to get over behavioral tendency of avoiding loss in investments—even if for short term. SIP works because it aligns with your periodical cash flows (monthly sip for monthly cash inflows). You are not expected to stop your sip once you begin.

SIP fails to generate wealth for most investors when they stop their SIP and do not resume them at the right time. Investors usually wait for clarity, market to stabilize which effectively means waiting until NAV has recovered and window of acquiring units at a lower level has closed. But the irony here is that while the investors stop/pause their SIP, they continue making financial commitments in ULIPs; stock market etc

The solution isn't to ignore market conditions entirely – it's to understand that SIPs are specifically designed to work through them. If you genuinely believe in your chosen fund's long-term prospects and your investment horizon remains unchanged, temporary market corrections/weakness should be irrelevant to your monthly contribution schedule. If anything, it should reinforce your commitment to the process.

The next time market headlines make you question your SIP commitments, remember that these moments of doubt are exactly when systematic investing proves most valuable. The discipline to continue contributing when others are pausing often separates successful long-term investors from those who merely hope for success

A word for long term investor—It’s not your thinking that makes big money, it’s sitting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Why timing the market is not good

Why should you not time the market

 Investment success or failure is entirely about the investor's psychology. We might say that so and so did badly because of wrong asset choices, mistiming the market or a bad economy, but those are just proximal causes, the symptoms. Investment success or failure is entirely about the investor's psychology. The root cause is always the investor's own mindset, knowledge and attitude. 

In fact, it's genuinely fascinating how human beings can simultaneously know something to be true and yet act as if they don't believe it at all.

Compounding is one of those rare things in life that delivers precisely what it promises. It's not a marketing gimmick or a clever sales pitch - it's simply mathematics at work. The arithmetic of money growing upon itself is as reliable as gravity, yet our behavior suggests a strange skepticism about its power.

When we invest, we don't see dramatic results in the first few years.  This delayed gratification is particularly challenging in today's world, where we've grown accustomed to immediate result

A monthly investment of Rs 10,000 takes almost a decade before the returns begin to overshadow the invested amount. This is precisely where most investors lose patience. They see the modest gains in the early years and conclude that the game isn't worth playing

What makes this more interesting is how we overestimate what we can achieve in the short term whilst underestimating what's possible in the long term.

Perhaps the solution lies not in more education - we already know these truths - but in developing a deeper belief in processes that take time. It's about cultivating the patience to allow compounding

Let me build a case for how rewarding can a long term be in real term. I have selected 2 funds in two different investment strategies.

1.    DSP Small Cap Fund in which a monthly SIP of Rs. 2,000 was initiated on 15/06/2010 and continuing till date (a real-life example)

2.    Lump Sum investment of Rs. 1L in Nippon India Growth Fund (Growth) made during its public offer (NFO) in October 1995.

  

		FUND	INVESTOR
INCEPTION		14/06/2007	15/06/2010
Investment mode			Monthly SIP of Rs. 2000
SIP Start Date			15/06/2010
Investment (Cost)			Rs.5,86,594
Status of SIP			ACTIVE
Market Value			Rs. 22,56,195

 

Nippon India Growth Fund (Growth plan) (Growth Option)

Investment of Rs. 1L in the fund’s NFO (October 1995) is currently valued at Rs.33,40,950 (CAGR of 12.70%)

Consider this—

If you had invested Rs. 5,000/-every month in equities in last 10 years (3650 days) it would have grown to Rs.12.42 L today.

However, if you had missed 10 best performing days,(out of 3650 days) your corpus would have been worth Rs.8.23L

Further, if you had missed 20 best days, you would be left with Rs. 6.86L only

If missing 10/20 days out of 3650 days can impact your wealth so dramatically, then timing is not a good idea.

Remember, your patience and belief in the market can create some serious wealth. Mutual funds can be the 2^nd. earning member of your family when you stop earning.

 

 

 

 

 

New Years Resolution for MF Investors

 Have you ever wondered what would a new year resolution of an equity investor look like—if there is one?

There are not many things that an investor should resolve in a new year that can bring about a real difference to their MF investments

The first and perhaps one of the most important resolutions is not to own all funds falling within alphabets A to Z. Remember you are not a collector of MFs but an investor. Diversify across categories/genre of mutual funds rather than schemes. Know your funds like categories they belong to and also how have they fared relative not only to their benchmark but also compared to their peers!

The second resolution could involve regular evaluation. You don’t need to churn your holdings in response to every market movement or news headlines published in pink papers. It does more harm to your portfolio than good.

The last & perhaps the most important resolution is to embrace SIP. Inculcate a habit of accumulating MF units through high & lows of the stock market. One way to derive maximum potential of wealth creation through MF is to increase your SIP amount regularly (known as STEP UP SIP) with every increment in salary. Other way is to promise yourself that you will not stop your SIP when market falls. SIPs are a simple strategy which makes your money work harder than you do.

Remember, you don’t need smart strategies to make money and/or create wealth from MFs—it’s simple but boring acts like SIP that evolves into a 2^nd. Earning member of your family that works when you don’t.

We believe that the 3 strategies and as discussed above can go a long way to help you meet your life’s goals by putting right amount of money in your hand at the right point of time

Our best wishes to you