Markets have been highly volatile of late due to geopolitical uncertainties and tension in the Middle East. Investors remain cautious as crude oil prices hover around USD 95 amid uncertainty over the Strait of Hormuz, the world’s most critical maritime energy chokepoint. Even during this uncertainty, Systematic Investment Plans (SIPs) can be beneficial for those investing with a long-term perspective. While the instinct during a market crash is to hit the “pause” button, data suggests that every dip gives investors the opportunity to create wealth in the long term.
What does SIP really do?
According to Swati Jain, CEO, Wealth, Arihant Capital Markets, SIPs quietly work in favour of those who remain invested during market falls. “When markets fall, you buy more units, and when markets rise, you buy fewer units. This brings down your cost and increases your long-term wealth,” Jain said.
Let’s understand this with an example: Rs 10,000 monthly SIP:
|
Month |
NAV (₹) |
Units |
|---|---|---|
|
Jan |
100 |
100 |
|
Feb |
80 |
125 |
|
Mar |
70 |
142.86 |
|
Apr |
90 |
111.11 |
|
May |
110 |
90.91 |
Total investment = Rs 50,000
Average cost around Rs 87.87
If NAV goes to Rs 110, the value will be equal to around 25 gain
Have a look at historical data about the return of Rs 10,000 SIP over the last seven years (2019-2026).
Pre-COVID SIP: Jan 2019 – Apr 2026 = 87 months
- Invested – Rs 8.70 lakh; Current value – Rs 16.80 lakh
- Gain = Rs 8.10L; XIRR~14.2 per cent
COVID downfall SIP: Apr 2020 to Apr 2026 = 72 months
- Invested – 7.20 lakh; Current value – Rs 17.50 lakh
- Gain – Rs 10.30 lakh; XIRR~23.1 per cent
Russia-Ukraine war SIP: Mar 2022 to Apr 2026 = 49 months
- Invested – Rs 4.90 lakh, Current value – Rs 6.40 lakh
- Gain – Rs 1.50 lakh, XIRR~11.2 per cent
“Should I stop my SIP?” is the most common question that comes to investors’ minds when the market falls. However, experts believe that a downfall can provide an opportunity to create wealth.
“When markets fall, your future wealth is getting built… silently. If you stop, you react with fear. If you continue, you act with discipline. In the world of compounding, discipline always wins,” Jain said.
