Mutual fund investments: Which is better, starting SIP at top or bottom?

If you think the answer is obvious, then you may want to read this analysis by WhiteOak MF

It is impossible to consistently predict the exact top or bottom of a market cycle. At best, one can create and follow a valuation checklist whenever one deviates from their Strategic Asset Allocation, which should help investors reduce portfolio-level volatility to some extent while participating in the equity market, said White Oak MF in an analysis.

 

But still, let’s assume one has some magical power, can predict the exact Top and Bottom, and wants to start a long-term SIP. So, should that investor start SIP at the Top of the cycle or the Bottom?  WhiteOak did a detailed analysis using long period data of BSE Sensex TRI (last 28+ years). It took all those periods when equity market has fallen more than 20% from its Top. The table below is the investment summary of two investors, one who started a Rs. 10,000 monthly SIP at the Top of various market cycles and the other at the Bottom: 

 

 

Key Findings: Timing Isn’t Everything

Wealth Creation vs. % Return: The report found that while the percentage return was slightly higher for SIPs that started at the bottom of the market cycle, the absolute gain (wealth creation) was significantly higher for SIPs that began at the top. This insight challenges the common belief that entering the market at the lowest point guarantees better returns in the long run.

 

For example, if an investor started a monthly SIP of Rs. 10,000 in January 2008 (just before the market began to fall), they would have invested a total of Rs. 20.4 lakh by the end of December 2024. This investment would have grown to Rs. 72.1 lakh at an XIRR of 13.5%. On the other hand, if the same investor had started their SIP in March 2009 (after the market bottomed), they would have invested Rs. 19 lakh and seen their portfolio grow to Rs. 61.7 lakh at an XIRR of 13.6%.

 

The Cost of Delay: Another striking takeaway from the report is the “Cost of Delay”—the longer investors wait for the market to hit rock bottom, the higher the potential opportunity cost. As time passes and the market recovers, waiting to enter can lead to significant missed opportunities. This points to the power of compounding: even marginal differences in returns over the short term tend to flatten out in the long run.

 

Consistency is Key: Over time, whether an investor starts at the top or the bottom of the market cycle, the percentage difference in returns tends to even out. This suggests that regular, disciplined investments—even when market conditions seem less than ideal—will likely yield similar long-term results.

 

The Power of Compounding

The report emphasizes that market risk is secondary to the risk of missing out on compounding over time. For investors focused on wealth accumulation, the key takeaway is clear: stay invested, stay consistent, and let time work in your favor. The ability to weather market cycles and continue investing steadily is likely to result in better wealth creation than trying to pick the exact top or bottom of the market.

 

The Numbers Behind the Report

The mean returns for Sensex and Nifty 50 over the past decade (from June 2014 to May 2024) stood at 12.62% and 12.42% respectively, reinforcing the idea that consistent market participation is more rewarding than attempting to time it perfectly.

 

Market Timing Is a Myth

While the data shows that starting at the top can sometimes yield higher returns in terms of absolute wealth creation, the reality is that trying to time the market with precision remains a risky and often fruitless endeavor. In fact, the marginal return differences between top and bottom start points over long periods suggest that consistent SIP investments—regardless of market cycles—are the most effective way to build wealth in the equity markets.

 

For investors, the message is clear: the biggest risk is not the market itself, but the missed opportunity of long-term compounding. Investing regularly and sticking to a strategic asset allocation will likely lead to superior wealth creation than trying to time the market.  Disclaimer: While this report uses historical data, past performance does not guarantee future results. Investors should consult financial advisers before making investment decisions. The calculations do not consider taxes or other transactional costs for ease of understanding.