Markets have turned highly volatile since the past few months and investors have multiple worries facing them currently. Prominent among them are:
Rising Inflation: The cost of commodities and primary goods is going up, pinching consumers. In order to keep a check and control on the same, RBI has resorted to rising the repo rates and has also hinted about more hikes in the coming months, till inflation is brought under its comfort level.
FPIs selling: On the other side, FPIs have been selling the Indian side of equities, owing to the global developments, valuation concerns and rising US fed rates. This has resulted in markets being pushed down further.
Rupee weakness: FPI selling along side higher import cost of fuel, amidst government economic support-led deficits, has made Indian rupee getting weaker against USD.
All of this resulted in investors getting shivers and it’s prompting them to sell their investments, fearing a further drop and also to stop SIPs.
Historical data: We would insist investors to take a breath and look at things from a long-term angle and not take decisions, speculating on the short-term volatilities.
Past corrections over 5 to 10 yrs: Markets have seen sharp declines in the past as well. Even if we were to look at the recent decade (refer chart below), markets turned highly volatile and have fallen during the episodes of the multiple scam gates, Demonitization, long-term capital gain tax imposition, the much sharper pandemic triggered nose-dive, etc. But eventually markets recovered, as and when more clarity and visibility emerged on the corporate earnings and economic front. During such times, the returns were lower or even negative in certain instances. It would really raise an important question among investors whether to continue with their SIPs or to stop it and redeem whatever was invested. But SIPs continued throughout corrections turned out to be highly profitable when markets eventually recovered. That’s an important aspect every investor should keep in mind when investing through SIPs.
Return & timing in SIPs: At times SIP investors think of timing the investments. What we need to understand is, the reason for starting an SIP is mainly to avoid timing the market. Very importantly, data over the past 20 years suggests that the SIP return (CAGR) from best timed investment and periodic investment is very close (monthly SIP). The key fact is, getting the best time right is very difficult and doing a periodic investment is very much possible.
In effect, we feel that investors should continue with their SIPs keeping their original goal points in mind. Given a possibility, they can increase the SIP amount especially during market corrections. One can create higher wealth by staying course and having patience.
(By Renjith RG, Associate Director at Geojit Financial Services)