On 19th Nov 2017 when I wrote a blog “Why the market is not getting corrected“ at that time Sensex was at 35632.76 and Nifty 50 was at 10731.30 and today on 11th Jul 2019 when I am writing this blog today Sensex level is 38557.04 which means Sensex gained hardly 4.74% and Nifty 50 is closed at 11498.9 means Nifty 50 gained only 4.15% over the period.
As per my predictions in the blog, the market remained range bound (Sideway) during the last 20 months. and this may continue till the heavy inflow of SIPs is not reduced drastically.
What I had pointed out is that the market’s weak point which may cause damage to the market returns as well as investors’portfolios. SIP’s inflow, which was Rs 5500 Crs in Nov-17, increased to 8122 Crs SIP inflow increases at a rate of 23.62% over the period
Everybody is thinking how SIP can damage the Market or investor’s portfolio?
Due to heavy inflow of SIP money, the market is not getting corrected and fundamental (earnings and other data) is not supporting the market to grow that’s why we are facing the Sideways Market at very high valuations.
Sideway market In higher PE, PB level will lead SIP portfolios to higher rupee cost averaging and due to this Margin Of Safety will be reduced. All this leads to chances of facing heavy losses while normal corrections in the market.
If you see the SIP arithmetic, your SIP’s averaging is locked in the first 3 years. There will not be any major changes on average.
If your NAV is dropped by 35% after 36 installments will reduction in averaging will be hardly 1% because by nature of SIP we are investing the same amount every time but at the same time your valuations get eroded by 35%. Same way when NAV dropped by 70% SIP portfolio averaging dropped by 2% only but at the same time your valuations dropped by 70%.
Month on month the chances of reducing averaging are getting reduced with increase in installments of sip.
The meaning of SIPs is changed by IFAs and AMCs just because they want to build the AUM with fewer efforts.
This is just like eating nutrition tablets without considering need of the body. This will result in malnutrition and create many complications in the body.
Just by building AUM without considering the Safety of an Investment, we cannot have a healthy Market. It may turn into a financial disaster.
IFAs & AMC both should keep in mind that they can earn only when an investor exists.
AMCs should also keep in mind that investors are coming to mutual fund for earning Returns only. If Schemes fails to generate proper Returns the Investors will shift to other asset classes.
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