Low SIP returns? Don’t worry!
AMFI’s impactful and far reaching “Mutual Funds Sahi Hai” successfully drew thousands of first time Mutual Fund investors into the fold in the past three years. Emboldened by healthy past returns, a large number of these investors took the SIP (Systematic Investment Plan) route. Unfortunately for them, SIP returns haven’t quite been hunky dory in the past couple of years. The large majority of Mutual Fund SIP investors who began investing last year are sitting on flat to marginally negative returns and having to wrestle with creeping doubts.
Here’s the thing - Mutual Fund SIP returns tend to be non-linear and can in fact go through extended phases of low to negative returns. However, things always average out over 5-7-year time frames! This can be frustrating, but history teaches us to hang in there and be persistent. Here are three examples of how SIP’s that’s started off with disappointingly low returns ended up creating wealth for investors a few years later.
Year: 2002
A SIP Investment of Rs. 10,000 per month started in January 2000 would be trading at a small loss after a frustrating wait of two long years. If you kept your SIP running for another 3 years, though, you'd be sitting on a colossal profit of Rs. 22 Lakhs!
Year: 2007
A SIP Investment of Rs. 10,000 started in late 2007 would be worth around Rs. 80,000 a year later - a frustrating loss of Rs. 40,000 on a cumulative investment of Rs. 120,000. Four years later, the same SIP would be at a profit of nearly Rs. 3.5 Lakhs!
Year: 2011
A SIP Investment of Rs. 10,000 started in early 2010 would be at a loss of Rs. 10,000 after two and a half years, in March 2012. Fast forward another two and a half years, and the same SIP would be earning a mighty profit of Rs. 7 Lakhs!
Counterintuitive as this might sound, low SIP returns in the first couple of years of your Equity Mutual Fund SIP’s might actually be a blessing in disguise! This peculiar phenomenon may be attributed to a combination of “Rupee Cost Averaging” and “Compounding”. Here’s how it works - if your Mutual Fund SIP returns are low early on, it indirectly implies that you’ve been accumulating a relatively large number of units in that fund. Since markets are invariably cyclical, price trends will reverse at some point. The more units you hold at this reversal stage, the better it bodes for your long-term wealth creation. So, if your SIP returns are low right now – don’t fret. Just continue your SIP’s dispassionately through the ebbs and tides of the markets. Remember – equity Mutual Funds Sahi Hai, but only if you’ve got your eyes fixed on your long term goals!
Your Investing Experts
Relevant Articles
How to Use SIPs to Create Long-Term Wealth
The financial planning journey to create wealth, and fulfil financial goals is a marathon, not a sprint. In this marathon, investing regularly in a disciplined manner through the systematic investment plan (SIP) route is the key to creating long-term wealth. In this article, we will understand how a consistent and disciplined long-term SIP investment can provide you with the benefits of compounding and create wealth.
Step-By-Step Guide to Starting a SIP: Everything You Need to Know
Most of us earn a regular monthly income and hence prefer to invest a regular monthly amount towards our financial goals. Also, it will be great if the monthly investment process is automated after a onetime setup. A Systematic Investment Plan or SIP allows you to do that. In this article, we will understand what is an SIP, how to invest in SIP, and where to invest in SIP.
SIP Vs Lumpsum Investments: Which Is Better?
Investing towards financial goals can be done in two ways. The first option is to invest a part of the income every month for the long term. The other option is to invest a lumpsum amount once and stay invested for the long term. Both options have pros and cons, and investors often wonder which option they should choose. In this article, we will discuss SIP vs Lump sum, and which approach an investor should take.