{"id":2158,"date":"2020-08-03T09:42:13","date_gmt":"2020-08-03T09:42:13","guid":{"rendered":"https:\/\/blog.certifiedfinancialguardian.com\/?p=2158"},"modified":"2020-08-04T06:28:10","modified_gmt":"2020-08-04T06:28:10","slug":"when-sip-does-not-work-do-this","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2020\/08\/03\/when-sip-does-not-work-do-this\/","title":{"rendered":"When SIP Does Not Work — Do This!"},"content":{"rendered":"\n

All mutual fund investments are subject to\n market risk, but with a Systematic Investment Plan (SIP), your wealth \ncreation journey is, usually, smoother.<\/p>\n\n\n\n

There is no doubt that SIP itself is an innovative way <\/a>to start investing regularly. Systematic Investment Plans (SIPs), facilitates diligent mode of investing in mutual funds<\/a>.\n This tactic takes advantage ofits rupee-cost averaging feature and the \npower of compounding, which helps to accumulate wealth for a long-term \ninvestment horizon.<\/p>\n\n\n\n

When you invest in a mutual fund your money is deployed in a either equity schemes<\/a> and\/ or debt schemes<\/a>.\n By opting for the SIP, when the market goes up, you buy lesser mutual \nfund units. If the market dips, you can pick up a higher number of \nunits.<\/p>\n\n\n\n

Thus, you are able to lower the downside risk by averaging out your cost, mitigate the shocks of short-term volatility in equity, and systematically build a corpus to accomplish your long term financial goals, such as retirement.<\/a><\/p>\n\n\n\n

SIPs are an ever-evolving, convenient investment option that instils financial discipline.<\/p>\n\n\n\n

Have you considered that there may be instances when SIPs might not work?<\/em><\/strong><\/p>\n\n\n\n

Well here’s the thing, SIPs do not work in bad times for short tenure!<\/em><\/p>\n\n\n\n

If you see SIP returns of some worthy \nfunds was negative as compared to lumpsum investment as shown below in \nTable 1. This points out that the SIPs do not work well in the market \ndown turn. But SIP was designed to average out the cost of purchase \nthrough systematic and regular buying of units in a mutual fund.<\/p>\n\n\n\n

The fundamental idea is to ‘not time the market’.<\/p>\n\n\n\n

Table 1: Worst performing SIPs<\/em><\/strong><\/p>\n\n\n\n

\n\n\n\n\n\n\n\n\n\n\n\n
Scheme Name<\/strong>\n<\/td>\nSIP Investment Returns (% XIRR)<\/strong>\n<\/td>\nLumpsum Investment Returns (% CAGR)<\/strong>\n<\/td>\n<\/tr>\n
5 years<\/strong>\n<\/td>\n3 years<\/strong>\n<\/td>\n1 year<\/strong>\n<\/td>\n5 years<\/strong>\n<\/td>\n3 years<\/strong>\n<\/td>\n1 year<\/strong>\n<\/td>\n<\/tr>\n
Aditya Birla SL Small Cap Fund<\/a>\n<\/td>\n-6.09\n<\/td>\n-14.76\n<\/td>\n-7.11\n<\/td>\n1.53\n<\/td>\n-11.21\n<\/td>\n-13.41\n<\/td>\n<\/tr>\n
Sundaram Small Cap Fund<\/a>\n<\/td>\n-5.53\n<\/td>\n-11.48\n<\/td>\n-1.96\n<\/td>\n-1.25\n<\/td>\n-11.24\n<\/td>\n-3.24\n<\/td>\n<\/tr>\n
Franklin India Smaller Cos Fund<\/a>\n<\/td>\n-4.60\n<\/td>\n-12.54\n<\/td>\n-9.01\n<\/td>\n2.09\n<\/td>\n-8.13\n<\/td>\n-12.63\n<\/td>\n<\/tr>\n
HSBC Small Cap Equity Fund<\/a>\n<\/td>\n-3.87\n<\/td>\n-10.26\n<\/td>\n1.11\n<\/td>\n0.27\n<\/td>\n-8.27\n<\/td>\n-5.37\n<\/td>\n<\/tr>\n
Nippon India Multi Cap Fund<\/a>\n<\/td>\n-2.83\n<\/td>\n-10.43\n<\/td>\n-16.48\n<\/td>\n0.53\n<\/td>\n-3.94\n<\/td>\n-16.92\n<\/td>\n<\/tr>\n
Sundaram Mid Cap Fund<\/a>\n<\/td>\n-1.99\n<\/td>\n-8.72\n<\/td>\n-7.20\n<\/td>\n2.53\n<\/td>\n-5.81\n<\/td>\n-5.42\n<\/td>\n<\/tr>\n
Aditya Birla SL Midcap Fund<\/a>\n<\/td>\n-1.89\n<\/td>\n-8.10\n<\/td>\n-1.53\n<\/td>\n2.23\n<\/td>\n-6.33\n<\/td>\n-5.81\n<\/td>\n<\/tr>\n
L&T Emerging Businesses Fund<\/a>\n<\/td>\n-1.59\n<\/td>\n-12.35\n<\/td>\n-8.62\n<\/td>\n5.53\n<\/td>\n-7.29\n<\/td>\n-11.42\n<\/td>\n<\/tr>\n
Franklin India Equity Advantage Fund<\/a>\n<\/td>\n-1.28\n<\/td>\n-6.89\n<\/td>\n-5.51\n<\/td>\n1.70\n<\/td>\n-3.38\n<\/td>\n-9.59\n<\/td>\n<\/tr>\n<\/tbody><\/table><\/div><\/center>\n\n\n\n

\n\n\n\nData as on July 31, 2020
\n(Source: ACE: MF; PersonalFN Research)\n\n<\/p>\n\n\n\n

As it is observed that during prolonged \nbull phases, rupee-cost averagingis negated and it buys at higher prices\n too. Historically the average SIP returns of Bull and Bear phase over \nlong-term horizon has been better and during Bull phase it has \noutperformed the S&P BSE 500 Index as seen in Table 2.<\/p>\n\n\n\n

The reverse is true during prolonged bear phases when one accumulates more units as the market value tends to be lower than the cost amount invested.<\/p>\n\n\n\n

Table 2: SIP returns across market cycles<\/em><\/strong><\/p>\n\n\n\n

\n\n\n\n\n
Market cycles<\/strong>\n<\/td>\nBear Phase<\/strong>\n<\/td>\nBull Phase<\/strong>\n<\/td>\nBear Phase<\/strong>\n<\/td>\nBull Phase<\/strong>\n<\/td>\nBear Phase<\/strong>\n<\/td>\nBull Phase<\/strong>\n<\/td>\nCorrective Phase<\/strong>\n<\/td>\n<\/tr>\n
08-Jan-2008 To 09-Mar-2009<\/strong>\n<\/td>\n09-Mar-2009 To 05-Nov-2010<\/strong>\n<\/td>\n05-Nov-2010 To 20-Dec-2011<\/strong>\n<\/td>\n20-Dec-2011 To 03-Mar-2015<\/strong>\n<\/td>\n03-Mar-2015 To 25-Feb-2016<\/strong>\n<\/td>\n25-Feb-2016 To 23-Jan-2018<\/strong>\n<\/td>\n23-Jan-2018 To 30-Jul-2020<\/strong>\n<\/td>\n<\/tr>\n
Average SIP Returns Of market cap funds\n<\/td>\n-53.609\n<\/td>\n49.917\n<\/td>\n-27.794\n<\/td>\n36.765\n<\/td>\n-25.318\n<\/td>\n28.591\n<\/td>\n-1.208\n<\/td>\n<\/tr>\n
S&P BSE 500 Index (rolling returns)\n<\/td>\n-0.368\n<\/td>\n0.218\n<\/td>\n-0.135\n<\/td>\n0.090\n<\/td>\n0.114\n<\/td>\n-0.091\n<\/td>\n-0.001\n<\/td>\n<\/tr>\n<\/tbody><\/table><\/div><\/center>\n\n\n\n

\n\n\n\nData as on July 31, 2020
\n(Source: ACE: MF; PersonalFN Research)\n\n<\/p>\n\n\n\n

Recently even a research study by DSP Mutual Fund’s findings published on Cafemutual<\/a>\n pointed out that the chances of earning negative returns decreases with\n every passing year and the chances of negative returns is nil after 15 \nyears.<\/p>\n\n\n\n

So, if you are weighing the pros and cons \nof pausing\/stopping your SIP when the economy is under going financial \nstress and markets are extremely turbulent…. Remember during market \nupswings it provides better returns as seen below in Table 3. SIP \nreturns have been better than lumpsum investments for same time periods.<\/p>\n\n\n\n

Table 3: Top performing SIPs<\/em><\/strong><\/p>\n\n\n\n

\n\n\n\n\n\n\n\n\n\n\n
Scheme Name<\/strong>\n<\/td>\nSIP Investment Returns(% XIRR)<\/strong>\n<\/td>\nLumpsum Investment Returns (% CAGR)<\/strong>\n<\/td>\n<\/tr>\n
5 years\n<\/td>\n3 years<\/strong>\n<\/td>\n1 years<\/strong>\n<\/td>\n5 years<\/strong>\n<\/td>\n3 years<\/strong>\n<\/td>\n1 year<\/strong>\n<\/td>\n<\/tr>\n
Parag Parikh Long Term Equity Fund<\/a>\n<\/td>\n13.43\n<\/td>\n13.30\n<\/td>\n31.13\n<\/td>\n12.05\n<\/td>\n11.89\n<\/td>\n18.65\n<\/td>\n<\/tr>\n
Axis Bluechip Fund<\/a>\n<\/td>\n11.32\n<\/td>\n8.14\n<\/td>\n6.54\n<\/td>\n10.21\n<\/td>\n10.32\n<\/td>\n6.18\n<\/td>\n<\/tr>\n
Canara Rob Bluechip Equity Fund<\/a>\n<\/td>\n10.77\n<\/td>\n8.98\n<\/td>\n14.96\n<\/td>\n9.35\n<\/td>\n8.61\n<\/td>\n11.55\n<\/td>\n<\/tr>\n
Mirae Asset Emerging Bluechip<\/a>\n<\/td>\n10.74\n<\/td>\n6.05\n<\/td>\n12.37\n<\/td>\n12.60\n<\/td>\n5.93\n<\/td>\n8.56\n<\/td>\n<\/tr>\n
Axis Midcap Fund<\/a>\n<\/td>\n10.68\n<\/td>\n7.81\n<\/td>\n9.78\n<\/td>\n8.50\n<\/td>\n9.81\n<\/td>\n13.87\n<\/td>\n<\/tr>\n
PGIM India Diversified Equity Fund<\/a>\n<\/td>\n10.49\n<\/td>\n10.33\n<\/td>\n31.91\n<\/td>\n8.50\n<\/td>\n6.52\n<\/td>\n17.90\n<\/td>\n<\/tr>\n
Quant Active Fund<\/a>\n<\/td>\n10.18\n<\/td>\n9.06\n<\/td>\n30.80\n<\/td>\n9.60\n<\/td>\n8.33\n<\/td>\n16.30\n<\/td>\n<\/tr>\n
Canara Rob Equity Diver Fund<\/a>\n<\/td>\n9.37\n<\/td>\n6.67\n<\/td>\n12.81\n<\/td>\n7.72\n<\/td>\n7.07\n<\/td>\n8.93\n<\/td>\n<\/tr>\n<\/tbody><\/table><\/div><\/center>\n\n\n\n

\n\n\n\nData as on July 31, 2020
\n(Source: ACE: MF; PersonalFN Research)\n\n<\/p>\n\n\n\n

Thus, one should consider investing in equities via SIP for an investment horizon of more than 5 years.<\/p>\n\n\n\n

End notes<\/strong><\/p>\n\n\n\n

SIP is a method of investing regularly in \nmutual funds. To support this investment method, you need to pick the \nright mutual funds to achieve your financial goals. So consider the qualitative and quantitative parameters<\/a> when selecting the mutual fund suitable for you.<\/p>\n\n\n\n

Investing in Mutual Funds through SIPs is a\n wonderful option that besides growing wealth also helps in developing \npatience, focus, and discipline, i.e. good habits.<\/a><\/p>\n\n\n\n

Before investing in any mutual fund, \nassess your financial goal, risk ability, investment time horizon, and \nyour financial circumstances. Keep your eye on the long-term objective; \nthe longer your investment horizon, the higher your scope to build \nwealth from different market phases.<\/p>\n\n\n\n

Avoid letting your emotions influence your financial decisions, especially in crunch times over the short term. It’s up to you to make prudent investment decisions and gain the most from your investments. Remember, every rupee invested, another rupee earned.<\/p>\n\n\n\n

This article first appeared on PersonalFN\u00a0here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

All mutual fund investments are subject to market risk, but with a Systematic Investment Plan (SIP), your wealth creation journey is, usually, smoother. There is no doubt that SIP itself is an innovative way to start investing regularly. Systematic Investment Plans (SIPs), facilitates diligent mode of investing in mutual funds. This tactic takes advantage ofits…<\/p>\n","protected":false},"author":4,"featured_media":2159,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/2158"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=2158"}],"version-history":[{"count":3,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/2158\/revisions"}],"predecessor-version":[{"id":2163,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/2158\/revisions\/2163"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/2159"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=2158"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=2158"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=2158"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}