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.
This article is a part of our detailed article series on what to do when stock markets reach a lifetime high. Ensure you have read the other parts here:
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:
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 (STP): 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
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:
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.
Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.
Start Building Wealth with Expertly Curated Mutual Fund Packages
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.
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?
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”.
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?
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.
What's next? You can join the Arthgyaan WhatsApp community
You can stay updated on our latest content and learn about our webinars.
Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.
For resident Indians 🇮🇳:
For NRIs 🇺🇸🇬🇧🇪🇺🇦🇺🇦🇪🇸🇬:
To understand how this article can help you:
If you have a comment or question about this article
The following button will open a form with the link of this page populated for context:
If you liked this article, please leave us a rating
Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
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
Market Movements
