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:-
6-months Delay:
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.
12-months Delay:
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.
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