Market top or bottom: When should you start SIPs for maximum wealth creation? Here’s the answer

Amid an ongoing debate about Indian market valuations, Whiteoak Capital AMC has advised investors to focus on staying invested for the long term rather than worrying about whether their Systematic Investment Plan (SIP) starts at the peak or trough of a market cycle. According to the asset manager, attempting to time the market is far less important than maintaining investment discipline.

The Power of Staying Invested

Whiteoak Capital AMC provided an example to illustrate why long-term investing outweighs market timing. 

If an investor had started a monthly SIP of ₹10,000 in the BSE Sensex TRI in January 2008—considered the peak of that market cycle—they would have invested ₹20.4 lakh by December 31, 2024. The current value of this investment would be ₹72.1 lakh, yielding an Extended Internal Rate of Return (XIRR) of 13.5 per cent.

Conversely, an investor who started the same SIP in March 2009, at the bottom of the market cycle, would have invested ₹19 lakh by the end of 2024. The current value of this investment would be ₹61.7 lakh, with an XIRR of 13.6 per cent.

Despite starting near the peak, the first investor accumulated ₹10.5 lakh more than the second investor. This difference underscores the significance of starting early and remaining invested for a longer period rather than trying to time the market.

Market Timing vs. Wealth Creation

The analysis highlights that while SIPs started at the bottom of a cycle may yield a marginally higher percentage return, the absolute rupee gains are far greater for those who begin at the peak and stay invested longer. Over time, the slight percentage difference in returns evens out, reinforcing the idea that consistency in investing is more valuable than market timing.

Whiteoak Capital AMC also emphasised that predicting the exact top or bottom of a market cycle is nearly impossible. Instead, investors should follow a valuation checklist to manage deviations from their strategic asset allocation. This approach helps mitigate portfolio-level volatility while ensuring participation in the equity market.

The Cost of Delay

The note further highlighted the significant "Cost of Delay" in starting SIPs later. The longer the market takes to reach the bottom, the higher the opportunity cost of waiting. Over time, whether an investor starts at the top or bottom of a cycle, the difference in returns becomes negligible. The real risk lies in missing out on the power of compounding by delaying investments.

The Key Takeaway: Stay Invested

Market risk is secondary to the risk of missing out on long-term wealth creation. Whiteoak Capital AMC's analysis reinforces a crucial lesson for investors: staying invested and remaining consistent yields better results than trying to predict market cycles. The ability to navigate market volatility with a steady investment approach is the cornerstone of wealth accumulation.

In summary, for investors focused on long-term wealth creation, the message is clear: start investing early, stay consistent, and let time do the heavy lifting. Whiteoak Capital AMC's insights reaffirm that trying to time the market is less important than maintaining discipline and leveraging the power of compounding. Whether the market is at a peak or a trough, the key to success lies in staying the course.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.