Priyanka Tiwari
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A recent study by ValueMetrics challenges the common belief that investors should wait for market downturns before starting Systematic Investment Plans (SIPs). The report highlights that those who begin SIPs near market peaks often accumulate more wealth over time compared to those who try to time the bottom.
The study was published at a time when the Association of Mutual Funds in India (AMFI) has observed a rising SIP stoppage ratio—the percentage of discontinued SIP accounts compared to new registrations. In February 2025, the ratio climbed to 122%, up from 109% in January, and significantly higher than the 83% recorded in December 2024. This increase suggests growing investor concerns amid market volatility.
Historical Data Analysis: Market Peaks vs. Market Bottoms
The ValueMetrics study analyzed 20 years of historical data from the Nifty Smallcap 250 Index, identifying phases where the index declined by more than 15%. It then compared two hypothetical investors:
One who starts investing at market peaks.
One who waits for a downturn before beginning SIPs.
Contrary to expectations, the results showed that investors who began SIPs at market peaks accumulated higher absolute wealth than those who entered at the bottom. While those who started at the bottom achieved slightly higher percentage returns, they ended up with lower total wealth.
Case Study: SIP Performance in Market Cycles
For instance, consider an investor who started a monthly SIP of ₹10,000 in January 2008, just before the market crashed by 76%. Over time:
The total investment amounted to ₹20.7 lakh.
By March 2025, the portfolio grew to ₹91.5 lakh, delivering an XIRR of 15.6%.
In contrast, an investor who waited for the crash and started investing in March 2009:
Invested a total of ₹19.2 lakh.
Accumulated ₹78.3 lakh by March 2025, with a slightly higher XIRR of 15.9%.
Despite the marginally better percentage return, the absolute wealth creation was higher for the investor who started earlier.
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