Should SIP be run till the beginning of GOAL period

Very often I have seen ‘EXPERTS’ suggesting to run the SIP for the entire period till the beginning of the goal period in print and electronic media. Every time I picked up the topic to write against this idea some time procrastination and sometimes data was not there to substantiate my thoughts. Not that I was praying for this crash to happen so that I could write a note on this 

However, on a serious note, let’s look at few data points and WHY it makes sense to lock the gain 18-24 months prior to start of the goal and park the amount in risk free asset class to avoid any crash like the recent one.

Say if the GOAL was to create a corpus of 30 lakhs for education in April 2020 and if the advisor suggested SIP of Rs. 10,000 p.m. for 12 years, i.e., 144 instalments with assumption of 12% CAGR, the future value would be Rs. 31.9 lakhs, which is very comforting for both investor and advisor as it is almost 2 lakhs more that the required amount but a crash like recent one can spoil the party. SIP done in the following five multi-cap funds in the below table clearly suggests so.

SIP Value after 12 years:

The above data suggests that due to recent crash the investor is nowhere near the GOAL because she continued the SIP till the GOAL period and became the victim of crash in the market.

Whereas, if the SIP was done for only 10 years and the future value was parked @7% in a risk-free asset the GOAL can be achieved or one can reach near the GOAL.

If the future value from above table is invested @7% the new future value would be approx. Rs. 33 lakhs, Rs.30.5 lakhs, Rs. 29.4 lakhs, Rs. 29.5 lakhs and Rs. 31.5 lakhs respectively.

This may sound like a fluke but doing it for 10.5 years or 11 years also helps in securing the GOAL. Let’s see the result.

SIP value after 10.5 years:

If the future value from above table is invested @7% the new future value would be approx. Rs. 32 lakhs, Rs.31.5 lakhs, Rs. 27.8 lakhs, Rs. 30.4 lakhs and Rs. 31.25 lakhs respectively.

SIP Value after 11 years:

If the future value from above table is invested @7% the new future value would be approx. Rs. 33.84 lakhs, Rs.32.5 lakhs, Rs. 30.44 lakhs, Rs. 33.05 lakhs and Rs. 32.6 lakhs respectively.

What do we understand from the above data is very simple fact that as soon as we reach near the goal amount as in the above case we should arrest those gains and move to risk free asset class and refrain from felling to GREED.

काह कामरी पामडी, जाड़ गए से काज

रहीमन भूख बुताइये, कैस्यो मिले अनाज

जिस प्रकार ठंड भगाने के लिए कम्बल मिले या मखमल उसकी परवाह नहीं की जाती ,उसी प्रकार निवेशक को सिर्फ अपनी ज़रूरतों पर ध्यान केन्द्रित करना चाहिए न कि एसेट क्लास पर.  

At the end of the day GOAL needs to be achieved.