Bull Phase or Bear Phase? When to invest your SIP?

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08 min read

Investors are often found in a dilemma when to start a SIP and whether or not to continue with their investments in a particular phase of the market.

Let us discuss which strategy one must implement irrespective of the course of the markets. We shall discuss investing through SIP in two major scenarios (i) Bull run and (ii) Bear run.

SIP means a systematic investment plan which allows the investor to stagger its investment into small portions of instalments, thereby giving the investor the benefit of ”rupee cost averaging”. This plan helps the investor in the long run as it averages the market’s short-term fluctuations. 

Investing in Bull Phase

A bull phase is generally when the market expectations are optimistic, and the stock prices in majorly all the segments are on a rising trend. 

If you had invested when the market was going through a low phase, the returns would have been higher in this phase.

But as it is known that no investor can ever time the market because the future cannot be predicted. It is advisable to continue your SIP even when the market is in a bull run because what looks high for you might get even higher if the bull run continues. If you run away that you might miss on the opportunity. But would you ever know? 

Also, are you still anxious that the bull run has taken the values up and when the market crashes, your investment will go down in value?

The way to deal with this is to work on ”rebalancing of your portfolio” and ”asset allocation”. You can decide to have a ratio of say 75:25 or 50:50 for equity and debt in your portfolio.

Rebalancing in intervals, say annually, will help you book profit in a bull run because you will invest more in equity when you are in a bear phase and less in the bull phase.

But please remember that excessive rebalancing would also not be of many benefits, in the long run, so do it only when you think it is required. You have to be aware of the cost involved by way of entry/exit load and tax implications before considering rebalancing your portfolio.

Investing in the Bear Run

The bear phase is when the market expectations are not optimistic, and the stock pricing is in a declining trend. 

Starting SIP in this phase when the markets are low is usually preferred as the prices are low. However, discontinuing your SIP in this phase is again not a good option. You will be getting more units against your investment, which will average the high cost of SIPs purchased in the past or bought in the future. When the market starts correcting, your subsequent SIPs would be purchased at the levels of correction. Hence if you continue your SIP in the bear run, you can recover the amount in the coming years and gain good returns when the fund grows. 

This is precisely how SIPs work favouring investors on the principle of ”rupee cost averaging.”

So can we say you should invest in a bear run?

As it is known that the market is unpredictable, and so you cannot be sure of a ”perfect time” to start or stop your SIPs. This is because no one can be sure if the current high will lead to further highs or a tipping point for the downward trend.

Conclusion

Given all the scenarios, one should keep investing in SIPs irrespective of the phase. No one has any control over a bull run or a bear run. However, one has absolute control over how you conduct yourself and your time frame, the timeline of your investments. The important thing is to plan and be disciplined about your investments.

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