Upcoming 2019 Elections is a Great Investment Opportunity
2019 elections, it seems has made every one vigilant including investments.
One of our investors recently wanted to stop the SIP which he had started just 4 months ago. His skepticism of the current market situation and the opinion that markets will remain volatile until elections are justified in a way.
Opportunity in Uncertainty
Current market levels are not giving a peak as to which way elections will tilt, hence the volatility. Markets peaked in August, this year with Nifty touching 11,738. Highest point since its inception. From there, it has now come down to 10,600. Due of this, investors who started SIPs in the last few months are seeing their portfolio in red.
What if we tell you that if you continue your SIPs or start fresh SIPs now and keep them on for the next 3 years, the performance of your SIPs will be much better as compared to waiting for elections to start the SIP? Yes, you read that right.
We analysed the market trend for the last 3 elections 2014, 2009, 2004. The volatility before the election has been high during elections but it is actually the right time for the SIPs to perform well.
While looking at data for last elections, we took three funds from different AMC’s and of different categories (Viz. Multi-Cap, Large Cap, Mid Cap). We also made sure that the inception date of the funds is well before the 2004 elections and the AUM (Assets Under Management) is more than 5000 Crores.
Another important criterion was to make sure that the fund category had not changed during SEBI’s re-categorization exercise. Considering all these factors, we analyzed a SIP of 5000 per month in two cases:
Case 1. SIP starting 6 months before the election and stopping 30 months after the election; completing the period of 3 years
Case 2. SIP starting immediately after election results and continuing for the next 36 months i.e. 3 years.
Now, let’s see how the performance of actual SIPs has been during the last 3 general elections.
(Please note that these funds are not recommendations of Investica. These funds are taken as representatives of each category as an illustration)
Above table clearly demonstrates that if an investor would have started a SIP 6 months before the election and would have continued with it for the next 30 months, his returns would have been much better as compared to the second case.
In 2009, the difference is more because it is also the time when the Lehman Brothers crisis happened. But overall, election years historically have been volatile and investors would benefit more if they enter during the period of volatility rather than waiting for the volatility to be over.
To explain this logic in technical terms, during the times of volatility, the standard deviation of a fund increases. (Standard Deviation is a number used to tell how a NAV of a fund is spread out from the average. High standard deviation means that the NAV is spread out and Low standard deviation means that NAV is close to average) With higher standard deviation, the investor gets access to wider entry points if he is entering systematically. These entry points bring down the overall cost for an investor, in turn, benefitting the investors over the next few years.
We believe the opportunities are there as we near the election period. Better late than never. So, if you are thinking of stopping your SIPs or waiting until the elections conclude, Think again! Look at the data and decide!
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