SIP: Nilesh Shah Answers

Benchmark indices for equities in India – the Nifty 50 and Sensex – are near all-time highs, and this may have left you wondering whether you should continue with your systematic existing plans or SIPs.

For equity-oriented funds, shares are the underlying. And when prices of shares rise, it also leads to a rise in the NAVs, or net asset value, of mutual funds – which means that you buy the units of the mutual fund at a higher price.

We had a quick chat with Mr Nilesh Shah, our group president and managing director, and this is what he said –

 

Q. Should I stop my SIP, considering that equity markets are at their all-time highs?

A. One of the features of an SIP or a Systematic Investment Plan is that it inculcates a discipline of regularly investing – irrespective of market levels. This helps investors in refraining from timing the market and also helps in averaging out the costs of the mutual fund units they have purchased over the long term.

So even if an investor purchases units at a high price through an SIP, they would have also bought these units at lower levels at some time in their investing journey, eventually leading to costs averaging out in the long run.

 

Q. Can I not re-enter the market at lower levels again?

A. Markets have currently discounted most positives that could be in store over the next few months. While inflation and interest rate action in India and the rest of the world will determine the direction of the market, one can still not take a definite call on where the markets are headed.

And to that extent, it will be difficult to determine when the markets have bottomed out, and when one should re-enter or re-start their SIPs.

 

Q. With talks of a recession globally, what could returns on investment look like?  

A. According to the IMF, India’s growth has been the highest among major economies in 2021 and could be the highest in 2022. India’s growth rate could also be the highest in 2023, according to the agency. The country has the fundamentals in place for growth in the long term, even if returns are volatile in the short or medium term. Investors must take a call accordingly.