Elections Ahead: Is It Time To Rethink Your SIP Strategy? Here's All You Need To Know

The general suggestion, derived from observing past market behaviour, leans towards maintaining a steady investment approach rather than speculating based on electoral outcomes

Historically, SIPs in well-chosen large cap funds have yielded average annual returns of about 10-12 per cent.

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By Chakravarthy V

With the 2024 General Elections in India on the horizon, a pertinent question arises among investors, should they put their Systematic Investment Plans (SIPs) on hold until the election results are out? Investors might think the uncertainties surrounding election periods negatively impact their investment returns. However, a closer look at market behaviour during past election cycles might offer a different perspective.

Market Trends in Election Years: A Look Back

Steady Market Growth Amidst Election Seasons: A look at historical market trends during election years presents an interesting observation. Markets have shown consistent growth, regardless of the electoral outcomes. In the 2019 elections, indices like the BSE Sensex and Nifty50 reached new heights despite the prevailing uncertainties before the election results. This growth pattern isn't unique to 2019; it has been a recurring theme in previous election years, including 1999, 2004, 2009, and 2014.

Investing Before vs. After Election Results: An intriguing pattern emerges when comparing investment returns from those who started investing six months before election results with those who waited until after the elections. Generally, those who began investing earlier fare better. For instance, investing in the Nifty50 index six months before the 2019 election results would have resulted in a 13 per cent return over the next year. In contrast, starting the investment on the election results day may not have yielded the same positive outcome.

The Dilemma of Pausing SIPs During Elections

Immediate vs. Extended Investment Horizons: When considering SIP investments in the context of elections, the question of pausing them becomes critical. Historical trends indicate that SIPs initiated six months before elections have shown more favourable outcomes compared to those started after the elections. However, this return difference tends to diminish over more extended investment periods. For example, a three-year SIP begun on the election result day 2014 showed similar, if not better, performance compared to one started six months earlier.

Managing Your SIPs During Election Times

Consistency Over Speculation: The general suggestion, derived from observing past market behaviour, leans towards maintaining a steady investment approach rather than speculating based on electoral outcomes. Historical instances have often demonstrated that election predictions can be unreliable, and acting on such speculation may not be the most prudent investment strategy.

The Bigger Picture of SIP Investing: For those with long-term SIPs, pausing for a few months during elections may have a minimal impact on the overall investment journey. Since a significant portion of the investment would already be in the market, a brief hiatus might not substantially affect the long-term outcome.

Will Your SIPs Soar or Stumble? The Impact of Govt Continuity

Historically, SIPs in well-chosen large cap funds have yielded average annual returns of about 10-12 per cent. If the incumbent government continues, stability and continuity in economic policies might support market growth, potentially benefiting SIP returns.

Conversely, a change in government could introduce policy shifts, possibly affecting market dynamics and SIP performance. However, SIPs, with their long-term perspective, are designed to weather market volatilities, making them a robust investment choice irrespective of short-term political changes.

Final Thought

Reflecting on past market behaviours during election cycles suggests that halting SIPs in anticipation of election results may not be essential. While cautiousness around significant events like general elections is understandable, a consistent investment approach might yield more favourable results in the long run. This strategy resonates with the core principle of SIPs, which advocates for regular investing, unaffected by short-term market fluctuations, to meet long-term financial objectives.

The writer is the executive director and co-founder of Prime Wealth Finserv Pvt Ltd.

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