The best time to invest in Stocks or Start A SIP in Equity Mutual Funds is similar to any other product – i.e. whenever they are the cheapest.
For most consumer products, either malls or online portals like Amazon / Flipkart announce sales and discount offers – That’s when products like clothes / electronics etc are available cheaper and most people buy them.
Unfortunately, for Stocks or before you Start a SIP in Equity Mutual Funds, the stock market does not announce a ‘Sale’ in advance.
Most people hear about the sale ( also sometimes referred to as a crash ) AFTER it has happened.
And that’s when most people, instead of buying more (because its cheaper) end up selling their stocks in the fear that prices will go lower.
Take a look at the chart below. It shows the movement of the sensex or the stock market over the last 25 years.
As you can see, there is volatility in the market and no one can exactly predict when the market will rise or fall, though there maybe broad indicators from time to time.
The green arrows indicate when most people usually buy ( thinking the market will go up more ) and the red arrow indicates where most people usually sell ( thinking it will go lower so let’s cut our losses while we can )
Hmmm, So When is the best time for me to start a SIP ?
There is no ‘best’ time to start a SIP, simply because you don’t need to ‘time’ a SIP.
Let’s understand a bit more how a SIP or Systematic Investment Plan actually works.
Let’s assume you you have started a SIP of Rs 5000 per month in XYZ mutual fund whose current unit price is Rs 100. Here is how your SIPs get invested over the next 12 months.
As you can see from the table above, when the price rises, you get less units, and when the price decreases, you get more units.
This increase / decrease of prices is known as volatility, also sometimes referred to as risk.
And this concept of buying results in Rupee Cost Averaging which ensures that your average price per unit is lower ( in the case about its Rs 94.7 ( Rs 60,000 / 634 units ) thereby reducing your risk.
Eventually, when the price rises at the end of the year, and you have a large no of units, the total value of your investments also increases from Rs 60,000 invested to Rs 95,054.
Note, both the profits and losses are only on paper and they only turn real when you sell them.
And that’s why there is no best time to start a SIP, because anytime is a good time as rupee cost averaging will reduce your risk of volatility and help you accumulate more units during downturns.
One caveat: While the example above is for a year, SIPs usually give better returns when they are done for a longer term period ( atleast 5 years and above ) so don’t just invest for 1 year and expect miracles.
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