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Nifty above 20000: what should you do with your equity SIPs? Start, stop or continue?

As the market keeps rising to new all-time high figures, how much returns should equity investors expect from their investments running in SIP form.

Nifty above 20000: what should you do with your equity SIPs? Start, stop or continue?


Posted on 17 Sep 2023
Author: Sayan Sircar
5 mins read
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As the market keeps rising to new all-time high figures, how much returns should equity investors expect from their investments running in SIP form.

Nifty above 20000: what should you do with your equity SIPs? Start, stop or continue?

📚 Topics covered:

Another new stock market high

Nifty 50 reaches Lifetime high level on 15-Sep-2023

We first wrote about the Nifty 50 reaching an all-time high (ATH) of 18,484.1 on 24-Nov-2022 and then again when the Nifty 50 crossed 19500+ on 14-Jul-2023. Since then, the index has reached ATH levels 8 times, with the latest peak on 15-Sep-2023.

Investors, both new and old, wonder what should they do with their equity investments running in SIP form: start, continue or stop? At this point, investors should quickly review the definition of SIP, SWPP and STP before continuing:

SIP SWP and STP

All of these are standing instructions that get executed as per a schedule you specify:

  • Systematic Investment Plan (SIP): Money from a bank account is invested into a mutual fund, typically once a month
  • Systematic Transfer Plan (SIP): Units from a mutual fund are redeemed to invest in another mutual fund of the same AMC
  • Systematic Withdrawal Plan (SWP): This is the reverse of the SIP. You sell the units from a mutual fund to send money to a bank account
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SIP returns exactly at the ATH levels are slightly lower

As expected intuitively, SIP returns for both short and long-term SIPs (₹1000/month in Nifty 50 price index) started at the time of all-time high is slightly lower than other periods as the charts below show:

Short-term SIP returns at All-time-high and otherwise

Long-term SIP returns at All-time-high and otherwise

Apart from the 20-year SIP case, all the others have slightly higher returns when the SIP series starts on an ATH dates vs. when it does not.

Should we then wait, skip or stop our equity SIP?

To answer this question, let us review the Nifty 50 price index since 1993. Over this period, there have been almost 500 days where the index has hit an all-time high.

Nifty 50 All-time-highs

There is unfortunately no shortcuts here in case you are expecting a simple go, halt or skip answer. Investment, like many other things in life, is simple once you understand it but not easy. Therefore, we will follow a systematic approach here via a series of questions:

Have you identified your investment goals?

Alice in Wonderland teaches us why goal-setting is important

Goal setting helps you understand the priorities of your life, set the future of you and your family, understand the various money-related challenges that come and be best prepared for the future financially. Goals give direction and momentum to your financial life:

  • direction: if you know why you need it then you know what to invest for. Creating wealth is not a goal. But investing for the purpose of sending your child to Harvard in 15 years is a goal
  • momentum: this allows you to build investing discipline and track progress along the compounding journey. Without a goal, it is likely that the money will be spent on frivolous things just because “money is available”.

You will hurt your chances of creating wealth via compounding if goals are not set.

You can follow the complete investment goal-setting framework as well as these worked out examples of S.M.A.R.T goals.

Do you have an asset allocation plan for each of these goals?

The basic premise of asset allocation is a balance of the investor’s goal priority (needs vs wants) and the time horizon of the goal like this:

(click to open in a new tab)
Goal-based investing: priority vs. asset-allocation

Once that is determined, a split of risky and risk-free assets like equity, debt, gold, cash etc per goal can be determined.

You can read more on Asset allocation here: What should be the Asset Allocation for your goals?.

Have you hit your rebalancing corridors?

What is rebalancing

Rebalancing is a risk-management tool that allows you to systematically buy low and sell high.

We will use corridor-based rebalancing as the decision-making framework here. We will use 5% as a corridor and a target asset allocation between two asset classes equity and debt. We will rebalance if the market movement shows that the current allocation has deviated by 5% from the target. If you are unaware of the concept of rebalancing, then please review this article before proceeding: Portfolio rebalancing during goal-based investing: why, when and how?

Corridor-based rebalancing is explained in detail here: The stock market has reached an all-time high. Should you buy or sell?

Once you have completed this framework, the next steps regarding your equity SIP will be clear. To help you, we have a list of extensive case-studies that you may refer below.

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Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
OR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

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This post titled Nifty above 20000: what should you do with your equity SIPs? Start, stop or continue? first appeared on 17 Sep 2023 at https://arthgyaan.com


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