Cost of delay

Cost of delay

Are you planning to delay your SIPs to avoid market volatility? Find out what it may cost you


Of late, many potential investors have turned cautious. With equity markets remaining volatile in the short-term, some new investors, who may have earlier firmed up plans to invest, are now reconsidering their decision. By delaying their investments, they think they can avoid short-term loss, even though they remain convinced about the long-term prospects. When asked, they often argue that a 6 to 12 months delay in their systematic investment plan (SIP) will not make any big difference, especially since they want to invest for a time horizon of 20 to 30. Will delays actually not make any difference? We tell you.


Six-month delays

Mutual fund SIPs are designed to invest both at highs and lows, and allow you to benefit from rupee-cost averaging. A delay means you will miss out on return. Six months may seem like a small period because it is just six monthly SIPs. But the impact is far bigger.


Let us assume you delay your monthly SIP of Rs 5,000 for six months in an investment horizon of 20 years. If your expected rate of return is a modest 12% per annum, a six-month delay can actually cost you Rs 3.18 lakh. If the return rate is 15%, a mere six-month delay will set you back by a whopping Rs 5.17 lakh. If your SIP monthly amount is Rs 10,000 and you expect 15% return annually, a half a year delay could cost you upwards of Rs 11 lakh. These delays cost a lot of money because they miss compounding opportunities


A year later

Since the next 12 months are likely to be volatile due to elections and what not, many investors are thinking of delaying investments for a longer period. They want to invest in the calm waters. Not only does such a strategy go against the basic purpose of doing SIPs, it also limits your money power.


For a moment, think that you wanted to invest Rs 12500 per month for a year in tax-saving funds. This would have allowed you to use the Section 80C limit. But you wait for 12 months. The cost of delay can be staggering even if your investment horizon is as long as 25 years. Delaying your Rs 12500 monthly SIP for 12 months (i.e. Rs 1.5 lakh) will lead to a loss of Rs 28 lakh even if you invested for next 25 years and got 12% returns annually. A 15-month delay will cost you Rs 34 lakh, and an 18-month delay will set you back by a staggering Rs 40 lakh.


So, it is a good idea to delay your SIP? Think again.




Happy Investing
Source:Valueresearchonline.com