SIP in a hot market?

Summary: Starting a SIP when markets are expensive raises your chance of a loss in year one to 28 per cent. Over 15 years, the average return is nearly identical to someone who started cheap. The starting point feels consequential. Over time, it almost isn't.

Summary: Starting a SIP when markets are expensive raises your chance of a loss in year one to 28 per cent. Over 15 years, the average return is nearly identical to someone who started cheap. The starting point feels consequential. Over time, it almost isn't. Equity markets do not move in straight lines. They swing between optimism and pessimism, dragging valuations from expensive to cheap and back again. Every time they do, investors find a new reason to hesitate. When markets rise and valuations look stretched, starting a SIP feels risky. When they fall, the dread of buying into a further decline keeps investors on the sidelines. The real question is this: does market valuation when you start a SIP actually shape your long-term returns? To answer that, we turned to BSE Sensex’s historical P/E data and checked how starting at different valuations affects returns.  Our test The market was considered overvalued when Sensex P/E was above its five-year trailing average by 10 per cent or more in any month between April 2003 and April 2026. This gave us 100 overvalued months and 64 undervalued ones. We then asked: if a SIP was started in each of these months in an average regular large-cap fund, what would returns have looked li