A real life example will drive home the benefit of continuing with SIPs when the market dips. Say, in the go-go days of January 2008, you started investing ₹1,000 each month in ICICI Pru Value Discovery, one of the top-rated equity funds.
Even when the bears ran amok in late 2008 and early 2009 as the global financial crisis hit, you gritted your teeth, continued the SIP, and kept investing through market ups and downs till January 2015. Your perseverance and patience would have paid off handsomely.
The ₹85,000 invested over the years would be worth more than ₹2.42 lakh today giving you an annualised return of 26.72 per cent.
But what if you, unnerved by sharp market falls, stopped your SIP between October 2008 ánd March 2009, then between August and December 2011, and also between June and September 2013? Your total investment of ₹70,000 in this case would be worth about ₹1.81 lakh today — translating into an annualised return of 24.57 per cent.
That’s a significant 2.15 percentage points lower than if you had stuck with the SIP even during the market downturns. That is, if you had timed the exit and re-entry so precisely, which is never easy. Also, consider the case if you invested the entire ₹85,000 in January 2008 in ICICI Pru Value Discovery and held on so far. Your investment would be worth about ₹2.46 lakh today, higher than the current value under the SIP.
But your annualised return at 15.35 per cent would be far lower than if you had taken the SIP route. Of course, if you had invested lumpsum when the market scraped the bottom in March 2009, it would have translated into higher annualised returns than going the SIP way. But then again, it is very tough to time the market; many an investor has lost his shirt trying to do so.
Ergo, it makes sense to invest in equity mutual funds through the disciplined SIP way and continue with them even when the market mood sours. This will help you build significant wealth in the long run for your various goals in life.