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Volatility, a boon for long term investor for wealth creation

Author: D Jayant Kumar/Wednesday, March 6, 2019/Categories: Exclusive

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Volatility, a boon for long term investor for wealth creation

India is one of the fastest growing economies and is poised to grow much better in the longer run. Even though there was a slowdown in the global economy, India performed quite well in comparison to other emerging nations. DIIs have become one of the strongest forces to be reckoned with and will continue to infuse liquidity in the Indian market. All these factors make India a favourite investment destination. Investments in SIP (Systematic Investment Plan) have increased tremendously in the recent past.

Simplicity and flexibility have made SIP a popular choice for investing. Financial discipline is very much essential for any investor and only this will help in achieving all financial goals. Most of us are lazy when it comes to investing as we have this general attitude of postponing our investment plans. But SIP is a tough task master in that sense. This module of investing will bring in you that commitment towards investing and makes you a regular investor. NAV at which you buy SIP varies on a daily basis; it may increase or decrease according to the market conditions and hence the average cost at which you buy an SIP unit gets lowered due to rupee cost averaging. And you can benefit from the concept of rupee cost averaging only when the markets move up and down. But people become jittery when the markets turn red and make a hurried exit from SIP.  “When the going gets tough, the tough gets going” -This saying best suits you if you are an SIP investor at times of volatile market. Investors who believe and understand that the markets are cyclical, have the courage to see the value of their investments getting eroded and also have the patience to see their investments gain tremendously when the markets are up.

If you as an investor are wedded to SIP, you should learn to have patience and faith that in the long run, you will get the expected returns. Though it is painful to see your SIP investments in red, patience definitely pays off. Eventually, volatility will end and the markets will again rise. That’s how the market works! Markets may go up or down but our financial plan or goals cannot be suspended based on that. Markets are bound to rebounce after every fall and so as an investor, you need not worry about the market fluctuations. The average time taken by the markets to rebounce is approximately 16 months. Historical data suggests that one who exits SIP during market lows, loses a great opportunity of wealth creation. Be smart and be an SIP investor to cash in on the market volatility.

Market volatility is a “blessing in disguise” for any SIP investor as it results in accumulation of more SIP units because when the market is up, you can buy only few SIP units but when the market is down, you can buy more SIP units as the NAV decreases. Also, a long term SIP investor is prone to get better returns than a short term SIP investor. According to a study by Value Research, the probability of getting more than 10% annualized returns from SIP increases in proportion to the number of years you invest in SIP. Interesting right! With a 5-year SIP, your probability of getting more than 10% returns is 63.8% and with a 10-year SIP, the probability increases to 77.3%.

The table below shows the time taken by the markets to rebounce:

Date of trough Price Date of peak Price No. of months to rebounce to peak
Oct 2000 5,934 Jan 2004 3,689 38.6
Sep 2001 4,372 Oct 2003 2,600 23.8
Jun 2004 6,027 Nov 2004 4,644 4.9
Jun 2006 12,612 Oct 2006 8,929 4
Mar 2009 20,873 Dec 2010 8,160 20.1
Oct 2011 19,702 Jan 2013 15,849 16.5
Aug 2013 20,161 Oct 2013 17,906 2.3
Feb 2016 29,459 Mar 2017 22,951 13.7


Emotional neutrality is what every investor needs to practice which simply means setting aside emotions of fear and greed while you make important decisions regarding your investments. The investment mantras which an investor should always adhere to are:

  1. Invest only that much money which you can afford to lose
  2. Invest in the market at all momentums
  3. Stay invested for a longer period

The table below highlights the returns generated by SIP schemes over a period of 3, 5, 10 and 15 years.

Scheme 3 Year Return 5 Year Return 10 Year Return 15 Year Return
Canara Robeco Emerging Equities Fund 7.54 13.14 20.42
Franklin India Smaller Companies Fund -0.95 7.57 17.84 -
Principal Emerging Bluechip Fund 4.94 11.10 17.59 -
L&T Midcap Fund 4.04 11.05 17.27 -
HDFC Mid-Cap Opportunities Fund 1.91 8.64 17.19 -
Invesco India Mid Cap Fund 6.06 9.90 17.09 -
Franklin India Prima Fund 3.54 9.50 17.04 16.06
SBI Focused Equity Fund 8.46 11.11 16.54 -
Mirae Asset India Equity Fund 10.85 12.53 16.19 -
Kotak Emerging Equity Scheme 2.15 9.74 16.12 -
DSP Midcap Fund 3.08 9.58 16.01 -
HDFC Small Cap Fund 9.34 13.16 15.64 -
Aditya Birla Sun Life Tax Relief 96 7.95 11.25 14.68 14.21
HDFC Children's Gift Fund 7.88 9.78 14.52 14.65
Aditya Birla Sun Life Equity Fund 6.03 10.17 14.20 14.83
SBI Large & Midcap Fund 6.87 9.65 13.73 15.42
DSP Equity Opportunities Fund 4.62 9.21 13.01 14.10
Aditya Birla Sun Life Frontline Equity Fund 5.57 8.17 12.61 14.75
HDFC Top 100 Fund 9.03 9.49 12.07 14.61


The author is head – third party products, KSBL


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