Are you planning to delay an investment, your Systematic-Investment-Plans (SIPs) by 6 or 12 months to avoid market volatility, wait for better plan? By delaying your investments, find out what it will cost you:-
Mutual fund SIPs are designed to invest both at highs and lows, and allow you to benefit from rupee-cost averaging. Six months may seem like a small period but the impact is far bigger.
Let us assume you delay a monthly SIP of Rs 5,000 for six months with an investment term of 20 years. If your expected rate of return is 12% per annum, a six-month delay will actually cost you Rs 3.18 lakh. If the return rate is 15%, a mere six-month delay will set you back by a whopping Rs 5.17 lakh. If your SIP monthly amount is Rs 10,000 and you expect 15% return annually, a six-month delay could cost you upwards of Rs 11 lakh.
Since the next 12 months are likely to be volatile due to elections and what not, many investors are thinking of delaying investments for a longer period. Not only does such a strategy go against the basic purpose of doing SIPs, it also limits your money power. Delaying a Rs 12,500 monthly SIP for 12 months (i.e. Rs 1.5 lakh) will lead to a loss of Rs 28 lakhs even if you invested for next 25 years and got 12% returns annually.
Incase your logic is fear of losses, repent at hindsight, you may do well to create a diversified, hedged portfolio with suitable instruments rather than idling with an all-cash holdings.
So, is it a good idea to delay your SIP? Think again.