{"id":271,"date":"2010-06-01T16:04:40","date_gmt":"2010-06-01T10:34:40","guid":{"rendered":""},"modified":"2011-08-30T19:35:14","modified_gmt":"2011-08-30T14:05:14","slug":"when-should-you-start-a-systematic-investment-plan-sip-of-a-mutual-fund-mf","status":"publish","type":"post","link":"http:\/\/www.raagvamdatt.com\/when-should-you-start-a-systematic-investment-plan-sip-of-a-mutual-fund-mf\/","title":{"rendered":"When should you start a Systematic Investment Plan (SIP) of a mutual fund (MF)?"},"content":{"rendered":"

You know that you want to start an SIP, but are not sure about the timing. Should you start it now, or should you wait for the market to correct? When is the right time to start an SIP? This article explains it all.
\n<\/p>\n

You know that a Systematic Investment Plan (SIP) is the best way to invest in a mutual fund (MF). (Check out \u201cSystematic Investment Plan (SIP) – A rupee a day, keeps worries away<\/span><\/strong><\/a>\u201d to know why)<\/p>\n

And you are all geared up \u2013 you have decided the sum to be invested every month, and have also zeroed in on the exact MF scheme in which you want to start the SIP.<\/p>\n

(How much you invest should not be any random figure \u2013 it depends on the financial goals you want to achieve. To know this technique in detail, please read \u201cGoal Based <\/span><\/strong><\/a> investing\u201d)<\/p>\n

But you are not sure about the timing \u2013 when should you start the SIP? Should you start it now, or should you wait for the market to correct a little? When exactly is the right time to start an SIP?<\/p>\n

 <\/p>\n

The answer<\/h2>\n

Let\u2019s get the answer upfront \u2013 any time is a good time to start an SIP<\/em><\/strong>. There is no good or bad time \u2013 any time is fine.<\/p>\n

Don\u2019t delay starting an SIP \u2013 if possible, start your SIP today! Don\u2019t wait for the market to go down.<\/p>\n

Surprised? Well, don\u2019t be!<\/p>\n

 <\/p>\n

The logic behind Systematic Investment Plan (SIP)<\/h2>\n

The whole purpose behind investing in MFs through SIP is to eliminate timing the market.<\/p>\n

When you make a one-time investment in a mutual fund, you wait for the market to correct (so that the price of the units goes down). In effect, you wait for the market to hit the bottom, so that you can get the MF units at the cheapest net asset value (NAV). This is a losing battle \u2013 because no one knows when the market would bottom out!<\/p>\n

An SIP is started to remove this element of timing from your investments<\/em><\/strong>. You invest a fixed sum every month, irrespective of the level of the stock market. And this way, you also benefit due to cost averaging. (Please read “Cost Averaging<\/a>” to know about this in details)<\/p>\n

You get lesser units when the equity market is up, but you get more units with the same investment amount when the market is down. Thus, due to cost averaging (also known as Rupee Cost Averaging), your average cost per MF unit goes down.<\/p>\n

Bottomline<\/strong>: You invest without worrying about the level of the stock market, and reduce your average cost of acquisition due to the short term fluctuations in the market.<\/p>\n

 <\/p>\n

Why is any time a good time to start an SIP<\/h2>\n

Isn\u2019t the answer obvious now? The very reason for starting an SIP is so that you can invest without worrying about the level of the stock market. So, why worry about the market level or the index level while starting the SIP?<\/p>\n

As we saw, the main advantage of an SIP is cost averaging. So, irrespective of the time (or the level of the market) when you start your SIP, your average cost of acquisition would go down due to the SIP.<\/p>\n

That\u2019s why any time is a good time to start an SIP!<\/p>\n

 <\/p>\n

The caveat<\/h2>\n

Yes, any time is a good time to start an SIP. This is true for the Indian market, but it isn\u2019t necessarily true for all<\/em><\/strong> markets. Let\u2019s understand this.<\/p>\n

All markets go through cycles \u2013 markets that go up eventually come down, and markets that go down eventually go up. However, the long-term direction of the stock market depends on the overall direction of the economy. If the economy is growing, the markets would go up in the long run. And if the economy is faring badly, the markets would trend down in the long term.<\/p>\n

In a fast-growing economy like India, the long-term trend of the markets is \u201cup\u201d, as the Indian economy is flourishing.<\/p>\n

Therefore, it doesn\u2019t matter when you start the SIP. Even if the market corrects after you start your SIP, it would eventually move up, and you would soon get a price higher than your average cost of acquisition.<\/p>\n","protected":false},"excerpt":{"rendered":"

You know that you want to start an SIP, but are not sure about the timing. Should you start it now, or should you wait for the market to correct? When is the right time to start an SIP? This article explains it all.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[13],"tags":[29,28,37,23],"_links":{"self":[{"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/posts\/271"}],"collection":[{"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/comments?post=271"}],"version-history":[{"count":0,"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/posts\/271\/revisions"}],"wp:attachment":[{"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/media?parent=271"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/categories?post=271"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.raagvamdatt.com\/wp-json\/wp\/v2\/tags?post=271"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}