Why Market Sentiment Doesn't Matter for SIP Investors

A recent report from WhiteOak Capital AMC highlights the significance of starting a Systematic Investment Plan (SIP) in mutual funds and why market sentiment shouldn't deter investors. The report compares SIPs initiated at market tops and bottoms, offering valuable insights for long-term investors. This FAQ explains the findings from the report and why SIPs can be a robust investment strategy.

1. What does the report by WhiteOak Capital AMC explore?

The report delves into the performance of SIPs in mutual funds based on data from the S&P BSE Sensex TRI over 27 years. It analyzes situations when equity markets experienced declines exceeding 20% from their peaks, and it compares SIP performance when initiated at market tops and bottoms.

2. What are the key findings from the report?

The report reveals several crucial findings:

   - While SIPs started at market bottoms may yield marginally higher percentage returns, SIPs initiated at market tops result in significantly higher absolute gains in rupee terms.

   - The "Cost of Delay" in starting an SIP late can be substantial over the long term. The more extended the market takes to reach a bottom, the greater the "Cost of Delay."

   - Over the long term, even marginal differences in percentage returns become insignificant, whether you begin an SIP at the market's top or bottom.

3. Can you provide an example of how SIP performance differs?

Consider an SIP investor who started with ₹10,000 monthly SIP in S&P BSE Sensex TRI during January 2008 (at the market's peak). As of September 2023, they would have invested ₹18.9 lakh, and the current value of their investment would be ₹58.5 lakh with a 13.2% XIRR. In contrast, someone who began an SIP in March 2009 (at the market's bottom) would have invested ₹17.5 lakh (₹1.4 lakh less) and seen the current value of their investment at ₹49.8 lakh (₹8.7 lakh less) with a 13.3% XIRR.

4. What is the main takeaway for SIP investors?

The primary takeaway is that market sentiment, specifically whether you start an SIP at a market top or bottom, should not deter you from investing. SIPs initiated at market tops have demonstrated substantial wealth creation in rupee terms over the long term. Even marginal differences in percentage returns between top and bottom entry points become insignificant with time.

Conclusion:

This report from WhiteOak Capital AMC underscores the resilience of SIPs as a long-term investment strategy. It shows that SIPs can result in substantial wealth creation regardless of whether you begin during market peaks or troughs. The key takeaway is that consistent, disciplined investment is more crucial than trying to time the market based on short-term sentiment.

Please remember that all investment decisions should be made based on your financial goals and risk tolerance, and it's advisable to consult with financial experts before making any investment choices.