There’s no right time or wrong time to invest in the equity market via SIPs. Timing of the market is relevant only when you invest a lump sum amount of money. The reason for this is that when you invest in the equity market via SIPs, you are making use of two important concepts of the market:

1. Rupee-cost averaging

2. Power of compounding

Rupee-cost averaging

Among the many benefits that SIP route of investment holds over others is the rupee-cost averaging. Odds are you would’ve heard this phrase from many mutual fund distributers without knowing what it means. So, rupee-cost averaging, as the name suggests, is buying a mutual fund at an average price using SIP mode.

Here’s how it happens:

- When you invest via the SIP route, your money gets deducted from your account and accordingly units worth the amount invested get accumulated in your folio.

- The money is deducted based on the frequency of SIP. If its monthly, then it will be deducted on a particular date of every month, as decided by you. Let’s say that date is 15th of every month.

Using SIP mode, the volatility in stock market is reduced due to rupee-cost averaging and the overall gains on investment will increase in the long run.

Rupee cost averaging works out in both scenarios - it will give more units when market is going down thereby reducing your average unit cost and it will help to buy less units when markets are expensive. Thus, it is a win-win situation for long-term investor.

In simple terms, there exists an inverse relation between market level and the number of units that get accumulated in your account. Hence, when the market is at a high you’ll get fewer units, and when the market is falling, you will get more units of the fund. This will, over a period of time, help lower the per unit cost of the units you hold, and hence it is called rupee-cost averaging.

TIME

Amount Paid

Price per share

Number of shares bought

Jan- 2017

2000

40

50

Feb- 2017

2000

48

41.67

Mar- 2017

2000

42

47.62

Apr- 2017

2000

34

58.82

May-2017

2000

28

71.42

Jun- 2017

2000

30

66.67

Jul- 2017

2000

50

40

Aug- 2017

2000

42

47.62

Sep- 2017

2000

44

45.45

Oct- 2017

2000

32

62.5

Nov- 2015

2000

36

55.55

Dec- 2017

2000

40

50

Power of compounding

The value of an asset or investment compounds if it is able to generate earnings, which can then be reinvested to generate more earnings. By investing in the equity market early an investor can benefit from the power of compounding, which is also called the eighth wonder of the world. When you buy a mutual fund or invest in an SIP, compounding allows you to earn profits on both the principal as well as the profits earned on existing principal amount that you have reinvested in the market. This helps an investor build a large corpus even with humble beginnings. Compounding of interest occurs when the interest generated on the principal amount is added to the principal amount and the resultant amount starts earning compound interest in the same manner.

By investing as early as possible, you can make the most of the twin benefits of rupee-cost averaging and the power of compounding.