STOP Thinking Start SIPing

$1 trillion market cap has been gone in the past four months, Indian benchmark indices, Nifty and Sensex suffered a downturn of over 15%, FPIs sold over $15 billion this year, US reciprocal tariffs, interest rate worries, slow corporate earnings and shattering dreams of investors who thought investing is all about making money. The retail investors panic when the market dance begins.

Many retail investors were exhilarated with the returns of the equity market in the last years having no idea that the market can correct at any point. Now it is hard to stay disciplined and continue investing but it is very easy to shy away from the market and they say it right, ‘History never repeats itself, but a man does.’

But before you stop your SIPs and exit the market, let us enlighten you with a few market stories and simple magical formulas to re-engineer your investing philosophy.

Suppose you decide to take a gym membership and start your investing journey simultaneously, working out daily and having those heavy weight sessions till your body crumbles is no easy task. However, you keep faith in your trainer and keep pushing with perseverance, discipline and motivation. “Rome was not built in a day”, for that matter anything significant and life changing things are not built overnight. It must go through its own tests.

Similarly, when you invest, periods of volatility and negative returns are inevitable, but you keep investing with discipline to create long-term wealth. You take advantage of the opportunities to create your brighter future. Let’s see few failures and comebacks of the market:

Market Dips

The market stories of past performance, magnificent returns and strong bull cycles are also full of rough patches of sharp declines, extended bear cycles, dark days and pain of negative returns. Let’s start with the 2008 global financial crisis and recovery when the Sensex crashed from around 21,000 levels to 8,000 levels in about 10 months. The 60% fall doomed the hopes of market recovery just to realise that market recovered to 20,000 levels by 2010 fuelled by strong corporate earnings and foreign investments amid economic rebounds.

Covid-19 Crash 2020-21, this time the Sensex suffered a heavy fall of 40%. The pandemic of pessimism took Sensex from 42,000 to 25,000 in just a month. When everything seemed to be over and there was no hope of recovery, Sensex started its rally and crossed 50,000 by early 2021, doubling in less than a year and gained another 10,000 points in 2022.

Young Investors

Most of the Gen Z and Millennial investors entered the market after or during the bull run of Covid 19. And now their patience is tested with a far comfortable correction of around 15% in the benchmark indices, Nifty and Sensex.

Always remember that the market did not achieve the milestone levels with linear growth, in fact it went down and broke its own bottoms. Sensex journey from 20,000 levels to 30,000 levels suffered a dip of 60%, while the Sensex jump from 40,000 levels to 50,000 levels saw a dip of 35%. Now the global brokerage Morgan Stanley predicts the Sensex to achieve the 1,00,000 milestone by the end of this year when Sensex is currently around 75,000, imagine the journey!

Now, let us take you through a few interesting data points. Over the last 44 years, the Nifty fell more than 10% from the top in 40 years, so you should understand that a fall of 10-15% is just a market correction which is also essential.

Over the last 10 years Nifty generated a compounded annual growth rate (CAGR) of 13.38%, however Nifty posted a CAGR of 13.92% in the last 3 years (your lovey dovey days with market huh!).

To generate this return, look at the volatility markets have been through. The worst month in the last 10 years is 37% fall, while the worst month in 3 years is a positive return of 6.2%. Worst year 10 years period is a 33% fall, whereas the worst year in the last 3 years is a positive return of 5.7%.

Timing The Market

What is timing the market? Timing the market is a complex procedure of anticipating asset returns. It includes guessing the right time to rotate the capital from one asset to another for example, from gold to equity, from currency to debts. Let’s make it more complicated, suppose the wise man decides to invest in equity, then he also needs to decide the equity based on market cap, large, mid and small and further the right sector like Auto, IT, FMCG Timing the market does not make wealth but spending time in the market during the cycle of loss, recession and negative sentiments does.

SIP Magic

So, let’s understand how the magic of SIP creates wealth especially in a falling market. Suppose if you do a monthly SIP of Rs 5,000 when the net asset value (NAV) is 98 and the market falls 2% every month, you will end up buying 695 units in one year.

Case 1 = 2% Fall/Month

In the second case when market behaves positively and if you continue with your Rs 5,000 SIP, you will end up accumulating 532 units in one year.

Case 2 = 2% Rise/Month

Are you still waiting for that magic? Thank you! for scrolling. So, in the case 2 when the market generates 12% return, your SIP return will be just 10%. Yes, you read it right, because you did expensive shopping.

But on the other hand, when you buy things on sale and at a discount you make profit. In the case 1 when you bought mutual funds in a falling market and the market return is 12% you will make a positive return of 16%. SIPs are a weapon in the falling market period.

So, the best way is to continue your SIPs with the financial guidance to achieve your finance goals. MINTIT, India’s dedicated Mutual Fund Platform which caters to your personalised goals and accompanies you to achieve your financial milestones is eager to help you build your wealth. Depending on your profile it precisely suggests tailored investing plans to achieve your goals.