How SIPs Make Market Corrections Work For You? Understand the key benefit of SIP

How Sips Make Market Corrections Work For You?
You must have heard that SIPs do wonders for you if you continue them through market ups and downs. But have you wondered how does this really work?

In this video, we explain with an example, how the continuing the SIP in volatile markets help you reduce your cost of investment and earn higher returns. So next time you see your portfolio in red or hear news of markets falling, be happy, not sad!

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How Sips Make Market Corrections Work For You?
No matter how volatile the markets get, experts advise you to continue your SIPs and benefit from them.
But have you ever wondered how this works?
Let’s find out!
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Okay, now let us move on with our video.
How do SIPs help you benefit from market corrections?
To make this really easy to understand, we will take an example of an investor Akash.
Akash started a SIP in January 2007 and Aditya Birla Sun Life Equity Fund was the scheme he picked.
We will split his investment journey into three phases to see what happened
The first phase -
The Rising Market: January 2007 to January 2008
Markets at that time were in the middle of a bull run and no one had imagined a big bust coming at that time.
Let’s look at how he invested and what his portfolio looked like in the next few months as markets kept going up
Focus your attention on the units received column. The number of units he is getting every month for the same cost is going down – from 54.5 units in January 2007 to 32.43 in January 2008.
This is because the market kept moving up, and this meant he was earning some incredible returns, it also meant the new investments were happening at a higher cost.
As a result, the average cost/unit for this period for Akash was Rs.211.71.
Then came the phase of market corrections...
Which started in February 2008 and continued till February 2009
Akash continued his SIP, expecting the trend to continue, but then came the market crash.
Despite this, he persevered and here’s how the investments looked during this period
In this table also, look at the units received column.
For February 2008, the number of units he got was 39.3 compared to 32.43 for the same amount he got in January 2008.
From this month, the number of units he received for the monthly investment amount of Rs. 10,000 continuously increased and reached to 82.98 in February 2009.
Yes, the market fell, and it meant that the overall portfolio was in red, but it set him up for higher returns.
As you can see, SIPs ensure you get more units at the same price when the markets correct.
In Akash’s example, he invested the same amount, in both rising and falling markets but got around 139 more units when the markets were correcting.

This is like a discount you get in a sale season where you get more for the same money spent.
After these two phases of his investment journey came
The Recovery and Growth
Now, from March 2009, the markets started recovering and eventually moved up.
In this phase, the benefits of extra units Akash collected becomes visible.
These extra units ensured that the overall returns of the portfolio were far more than what would he would have earned had he stopped his SIP when markets started falling
Here is a comparison table that shows overall returns in June 2010 with and without those extra units:
Despite the significant market correction in 2008, when more than 50% of his portfolio’s value got wiped out in just 14 months, Akash still got a 13% average annual return on his investments
This is because, in a falling market, SIPs bring your average purchase cost down as more units get accumulated, so when the markets bounce back, the profit generated by your investments are higher.
So, markets falling and rising is a reality every equity investor has to accept. However, you should not fear volatility but look at the downturn as an opportunity.
And that brings us to the end of the video.
Now that you know how SIPs are good for you, why not start one?
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