When starting a Systematic Investment Plan (SIP), many investors are often hesitant to begin during market peaks, fearing a subsequent decline. However, what if we told you that even if you start your SIP at the top of the market and the markets start rolling down, you can generate handsome returns when the market recovers? This powerful concept is called ‘V shaped SIP strategy’ and we have data to support it.
The V shape SIP concept:
The V shape SIP concept revolves around the idea that market downturns should not deter you from investing. In fact, they can be a strategic opportunity. When you start a SIP at a market high and the market declines, your regular investments buy more units of the fund at lower prices. When the market eventually recovers, these additional units purchased at lower prices significantly enhance the value of your investments, leading to substantial returns.
Real-world data to support the ‘V Shape SIP Strategy’:
Let’s delve into the data to see how this strategy performs in practice. The charts below illustrate the performance of Rs. 10000 SIP started at different market peaks in Sensex, showcasing how the investment fared as the market declined and eventually recovered.
Key Takeaways:
- Market Downturns as opportunities: The data shows that starting a SIP during market peaks and continuing even during market crashes can result in acquiring more units at lower prices, potentially increasing future returns.
- Consistent Investment pays off: Despite initial negative returns during market lows, consistent investment during these periods ultimately resulted in significant gains once the market rebounded.
- Compounding benefits: The additional units purchased during the downturns compound over time, leading to exponential growth in the investment value when the market recovers.
Why start an SIP regardless of market conditions?
- Rupee cost averaging: Regular investments spread across market highs and lows average out the purchase cost, reducing the impact volatility.
- Discipline and convenience: SIPs instill a disciplined investment habit, making it easier to stay invested through market cycles.
- Long term growth– Historical data shows that markets tend to grow over the long term, rewarding patient and consistent investors.
Conclusion:
The ‘V shaped SIP strategy’ is a testament to the power of consistent investing, even in the face of market downturns. By leveraging market declines to your advantage, you can accumulate more units at lower prices and benefit significantly when the market rebounds. So, don’t delay your SIP investments waiting for the perfect time. Start now, stay consistent, and let the market work in your favour over the long run. Embrace the V shape SIP strategy and turn market volatility into your wealth- building ally.
