How Investors Have Lost Money In SIPs In 2015?

Investment

oi-Sunil

By Sunil Fernandes

Published: Friday, December 11, 2015, 8:36 [IST]

Systematic Investment Plans (SIPs) are always very well sold on the grounds that you cannot time the market and investment in it helps to average costs in a falling market.

But, one of the laws for always making money is to buy low and sell high. If you carefully look at the index, you would realise that in the month of Dec 2015, it is almost at the lowest levels through the year. So, investors who have been investing, through the year in SIPs, have been doing so, at relatively higher prices.

Date	Sensex Closing
Jan 1, 2015	27,507 points
Feb 3, 2015	29,000 points
March 2, 2015	29,459 points
April 1, 2015	28,260 points
May 4, 2015	27,490 points
June 1, 2015	27,848 points
July 1, 2015	28,020 points
Aug 3, 2015	28,187 points
Sept 1	25,696 points
Oct1, 2015	26,220 points
Nov 2, 2015	26,559 points
Dec 1, 2015	26,169 points

In the table above, you will see that the average by taking the index at the start of the month was around 27,554 points,. Today, the index is around 25,200 points, thus investors have certainly bought at higher prices on an average.

If you would invest a lump sum today, when the index is at 25,200 points, you would be much better off, than the SIP. Remember, you have to also calculate interest cost, which you would have got in a recurring deposit at a bank.

So, in Dec, you would probably have lost money in SIPs, particularly, if they were large cap oriented SIPs.

Now, if the markets fall further, you are likely to lose further. Because remember, for quite a few months, the Sensex was in the 29,000 and 28,000 points. You have been buying higher. So, to recover the money that you lost in 2015, the Sensex has to really rally higher and faster to probably 29,000 points to 30,000 points.

By the time it does that probably by the end of 2016, you would have had two years gone, which means, you could should have really received 18 per cent returns, considering that at the start of 2015 interest rates were near 9 per cent in bank deposits.

The theory that you average your cost in SIP is really a theory that can easily be debunked. In today's market, timing is as crucial as averaging. If you enter the markets at peaks, you may take years to recover your money.

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