Why SIP's Importance exceeds that of market timing

"Discover why SIP investing is more important than timing the market. Learn how missing even a few SIPs can cost you lakhs and why staying consistent is key to long-term wealth creation."

Just a few SIPs may cost you lakhs!
Many investors timing the market in search of the "perfect moment" for investment. But what if I told you that skipping just a few SIPs (Systematic Investment Plans) in the early years of your path might drastically reduce your long-term wealth.

Let us investigate this using figures.

The Long-Term View of SIP: Its Power

Starting a monthly SIP of ₹15,000 and carrying it in an equity mutual fund with 12% annual returns for 30 years, suppose Your overall profits and expenditure would show like this:

Fundamental Realizations

• Just missing three SIPs costs ₹6 lakh over thirty years.
• Skipping six SIPs will cut your wealth by ₹13 lakh.
• Your corpus might be shrank by ₹25 lakh with a year-long hiatus (12 SIPs!).

You cannot restore the lost compounding benefit of early investments even if you later resume SIPs.

Why Timing the Market Does Not Work

Many investors quit their SIPs and start to panic amid market corrections. Ironically, these are the perfect moments to pick more units at a reduced price.

The following explains why keeping invested is more crucial than timing the market:

• The Best Days Are Unpredictable: Long-term gains might be seriously lowered by missing even a few of the top-performing days on the market.
• Emotional Investing Hurts Growth: Wait too long in bull markets and panic selling in bear markets can destroy wealth building.
• Increasing Benefits Early participants: Because of the compounding potential, the initial few years of SIPs greatly contribute to ultimate wealth.

The correct approach is to be consistent!

• Automate Your SIPs. Create auto-debits to prevent skipping outflows of assets.
• Ignore market noise; keep investing regardless of market direction.
• First, keep six to twelve months of expenses in liquid funds to prevent stopping SIPs in an emergency.
• Get SIP Over Time: To maximize gains, think about a SIP top-up annually.

Excel formulas to calculate SIP return

Excel formulas let you figure SIP returns and examine the effects of missing SIPs. Here is the process:

=FV(rate, nper, -pmt, 0, 1)

Where:

• rate = Monthly return rate (Annual rate / 12)
• nper = Number of months (Total SIPs paid)
• pmt = SIP amount (₹15,000 in this case)
• 0 = No lump sum investment
• 1 = Payment at the beginning of the period (for maximum compounding)

Calculating SIP for 30 Years with 12% Annual Returns

• Annual Return: 12% → Monthly Return = 12%/12 = 1% (0.01 in Excel)
• Duration: 30 years → Total SIPs = 30 × 12 = 360
• SIP Amount: ₹15,000

        =FV(0.01, 360, -15000, 0, 1)

        This renders a future value of ₹5.65 Crore.

Adjusting for Missed SIPs

If you miss SIPs, adjust nper (number of months).

            Missed 3 SIPs (357 months):

                =FV(0.01, 357, -15000, 0, 1)

           Missed 6 SIPs (354 months)

                =FV(0.01, 354, -15000, 0, 1)

           Missed 12 SIPs (348 months)

                =FV(0.01, 348, -15000, 0, 1)

Thoughts on Final Matters

Time in the market determines more than timing the market. A disciplined SIP strategy guarantees long-term wealth building and market cycle riding-through. Missing even a few SIPs could cost you lakhs, hence keep involved and let compounding work wonders!

Thanks for reading. What is your thought?