Why you should consider starting a SIP in fluctuating markets

The economy and markets regularly witness up and downs. During a downtrend, it is understandably upsetting to see your mutual funds in red. Many investors get caught in the dilemma of whether to continue with their SIPs in such scenarios ridden with uncertainty. For these investors, it is important to note that short-term disruptions are a part and parcel of one’s long-term investment journey and that SIPs are designed to sail through exactly this kind of turbulence.

Let us consider an example of Investors A and B, who invested in the Nifty50 Total Returns Index via SIPs:

Sources: Axis MF Research, NSE Website
The above illustration is to explain the concept and does not necessarily reflect the returns that may be delivered by the Mutual Fund schemes. Axis Mutual Fund/Axis Asset Management Company Ltd. /Axis Mutual Fund Trustee Limited is not guaranteeing or promising or forecasting any returns. SIP does not assure a profit or guaranteed protection against loss.*Returns are absolute and represent the percentage difference in closing prices of Nifty50 TRI index on last and first business days of each CY from 2010 to 2019. Past performance may or may not sustain in the future.

Both A and B started their SIPs in Jan 2015. The Nifty50 TRI Index showed negative performance in 2015 and marginally high in 2016 as shown in the table above. Amid this, Investor A got frustrated and stopped his SIP, taking home a negative return.

Sources: Axis MF Research, NSE Website

Investor B, however, was aware of the nature of markets and remained patient despite the negative growth in 2015 and insignificant growth in 2016. He knew that SIPs were designed for the long-term purpose of wealth creation and made the best of market volatility. He remained invested and witnessed a huge positive return of 28.7% over 2017through their investment period.

What did Investor B know that Investor A did not?

• Market performance tends to be periodical: If you notice the returns in the chart, you can clearly see a three-year positive return trend for the Nifty50 TRI over the last decade. As with this index, all asset classes and indices follows periodical trends. Remaining investing for the long term through these cycles ensures that you make the best out of the cycles. SIPs can help you stay invested through ups and downs without the interference of your emotions or impulses.
• SIPs are all-weather investments: The more market cycles the SIP goes through, the higher the chances of creating wealth. How is that? When markets are on the decline, the most important thing that goes in favor of SIP investors is that they get more units for the same investment amount. Thus, your overall cost of acquiring mutual fund units goes down. You, therefore, stand to gain more in the case of a market recovery compared to someone who invested only when the markets were trading higher.
• Wealth creation is a long-term journey: Rome wasn’t built in a day, and wealth certainly wasn’t. When it comes to wealth creation, slow and steady is the way to go. This is because your investments get more time to grow. At the same time, by reinvesting your returns, you get returns over your returns, aiding the process of wealth creation. SIPs allow you to invest slowly, steadily, and over the long term as you can invest even with small amounts. Further, they keep you disciplined with respect to your financial goals, as a fixed amount of money is debited from your bank account at your chosen frequency. They also eliminate the need to time the market.

Apart from the benefits mentioned above, SIPs gives you total control over your investments, which means that you choose—the term, the periodicity, the amount, whether to increase/decrease the amount, pause or even stop the SIP.

Key takeaway from A and B’s investment journeys:

• Investors are often tempted to invest when the markets are rising and tend to shy away from falling markets. It is in these scenarios that SIP comes to the rescue. The very purpose of an SIP is to invest through ups and downs, which shields you from the risk and hassle of timing the market.
• Remember, markets tend to reward those who are patient and stay focused on their long-term goals. A downfall must be treated as just another short-term glitch in your long-term investing journey and an SIP can even help you benefit from such falls!

It therefore makes sense to stay calm and keep that SIP going!

Disclaimer: This article represents the views of Axis Asset Management Co. Ltd. and must not be taken as the basis for an investment decision. Neither Axis Mutual Fund, Axis Mutual Fund Trustee Limited nor Axis Asset Management Company Limited, its Directors or associates shall be liable for any damages including lost revenue or lost profits that may arise from the use of the information contained herein. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme.  No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

Past performance may or may not be sustained in the future.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.