Systematic investment plan has always been the recommended route for equity investments. But is it really beneficial in booming markets? I had made an SIP in one ELSS fund. But later I found that had I invested in lump sum, I would have benefited more since at the time of first installment the NAV was very low. Since I have opted for SIP, I have ended buying at higher NAV, thus diminishing my overall returns.
- Praveen Muragundi
Your argument is only valid on the hindsight. At the time you started the SIP, did you know that the markets will keep going higher and higher afterwards? If somebody can know for sure beforehand that the markets are only going to go up, then obviously it makes sense for him to invest his entire surpluses in equities and derive maximum benefit out of it. But unfortunately nobody can predict the markets. That is why SIP is recommended so that you can tide over the ups and downs that will come your way during the tenure of your investment and end up with a net cost per unit of somewhere in the middle, neither the highest nor the lowest.
You would have realised the worth of SIP had the markets slipped in red subsequent to your investment. But that is not hard to imagine in present circumstances. Had somebody invested a lump sum amount in an equity fund at the start of May, he could have easily been sitting with double-digit losses in the very first month. But had the same person invested through SIP, his losses would have been restricted only to his first installment and he would also have had the advantage of investing subsequent installments at a much lower NAV.
Therefore, do not worry about the short-term profits or losses. Over a longer term, you will realise that SIP is a very effective way to invest in equities.