systematic investment plan,when you invest in a mutual fund,investment management

If Systematic Investment Plan Is So Bad, Why Don’t Statistics Show It?

There is a lot of noise regarding the performance of systematic investment plans or SIPs. People are in dilemma if they should continue investing or exit the SIP.

The doubts are there because of the below par performance of mutual funds in the past year. My friends who were investing in SIPs had similar questions when they talked to me regarding investing.

If you have started investing in a systematic investment plan last year or so, you may also be wondering what you should do now. Actually, this is a genuine issue for a small investor.

It is very painful to see our investment not yielding a decent return on investment or rather showing the losses after one year of investing.

I am also investing in mutual funds via sip route for the several years. It is not a good feeling to see my portfolio not performing that well.

But, on the other hand I was also happy that the net asset values were trading lower. I advised to those people also to not to be disappointed and continue with their SIP investments.

The reason is the past statistics for the systematic investment plans. They tell us different story than what we saw in the last year.

Let’s us find out if we should continue with our systematic investment plans or should stop investing, believing that the dream run for the SIPs is over. Also find out why you should be happy as an investor and not disappointed when prices are trading lower. And what the statistics or past data say.

What is Systematic Investment Plan

I am sure you know very well if what is a systematic investment plan.

It is method of investing in mutual funds systematically in small installments of your choice at regular predefined intervals.

Before we start investing in SIP, we plan for a goal. The goal is to accumulate wealth over long term by investing in small amounts and not in lump sum.

The goal can be to create a big corpus for our retirement times, for the education or marriage of our children or buying a home for us or anything like that.

We are also aware that it can be risky when you invest in a mutual fund. Investment requires sufficient time to make the risk zero and give us good return on investment.

It is time which makes the wonders in systematic investment plans. With time comes the power of compounding. It is the compounding which ensures that the returns are best in equities among different asset classes.

SIPs remained the favourite investment option for investors in the past. We know SIPs can yield returns of around 12 – 15% in the long run. It is much better than the other safer conventional saving options like fixed deposits.

So does it mean that we stop investing in a SIP because it could not deliver the expected return in the last year? We talk about it after we take an example of a SIP investment.

What Stats Say About SIP Investments?

I had started my SIP investments in HDFC Top 200 Fund few years back in 2011. I had to redeem my investment in 2018 due to personal reasons although I wanted to continue it for 15 or 20 years. I take the example of this fund to make things clear.

The below image is taken from moneycontrol. It shows us the graph line for NAV or net asset value of this fund. The fund scheme was launched in the year of 1996.

Here we see that the NAV remained in up-trend in the long term. The NAV was somewhere near 86 in 2009 and in 2019, after a period of 10 years, it is trading around 496.

Systematic Investment Plan

In between those ten years, there were times when the fund didn’t perform as expected. Rather it gave negative returns. See those dips in the above image between 2010 and 2014 and also around 2016.

Despite witnessing those bad performances, the fund was able to come back strongly. What is important here is that given sufficient time, investments definitely give you decent returns on investment.

To have a look at the returns, see the data below. There are absolute returns and annualized returns (taken from moneycontrol)

If we leave the absolute returns and only see the annualized returns, they were above 15% for most of the times when the time horizon was 5 years or more.

Systematic Investment Plan

This is a great return on investment if we talk about the figures. This is best in comparison to other conventional tools of saving or investment. The important thing is that we give time to our investment to work. It is systematic investment and is never for short-term.

Sometimes people may not plan their investment in the right way. The most common mistake that they can make is not to understand the difference between saving and investment. That may be a reason for disappointment for them when they see the returns on SIP investments in short periods of time.

I was talking of being happy when the fund is not performing well in the above section. The reason for that is that when NAV of the SIP is not increasing, I am buying more number of units of the mutual fund scheme for the same amount invested. More units accumulated now means more returns and capital appreciation after those years of investment.

When you give long time to your investment, there is nothing to worry. The risks become nearly zero. This is also stated by the experts in an article in Forbes.

Fear and greed are the two biggest enemies of a trader or an investor. Fear factor comes into play when the stocks or mutual funds start falling. Greed is when you have achieved enough or achieved your target but still are reluctant to exit the market.

It is not that you totally ignore both the situations. you need to learn the art of investment management. Be prepared for market falls and don’t panic.

You can buy more when market sees downfalls, in addition to the regular investment while maintaining belief on your research of mutual fund scheme. Take your profits timely when you are near your goals.

That is not the sole example to show the returns. There are so many fund scheme. See the below images of two other funds ; Aditya Birla Sun Life Tax Relief Fund 96 and Reliance Tax Saver Fund. The later is giving very good returns even after giving negative returns in the last one year.

Systematic Investment Plan
Aditya Birla Sun Life Tax Relief 96
Systematic Investment Plan
Reliance Tax Saver Fund

When you invest in a mutual fund, via SIP or lump-sum, you can get great returns if you keep invested. These examples beautifully show us this important thing, especially for SIP investments.

Conclusion

Looking at the returns given by systematic investment plans in the above examples, we can say that they they are good investment tools. Under-performance of a year or two does not make them bad investment. Keep faith in your decision to go for SIP investments.

We had started investing in SIP with a time period of 5 years, 10 years or more in our mind. Then why do we exit our investment after looking at the return of one or two years? We should neither stop nor pause our SIP by seeing market or mutual fund declines.

You should keep reviewing your investment regularly, preferably annually. You can invest in mutual funds via SIP route or lump-sum, but give it time when you invest in a mutual fund.

Never wait for the right time to start investing in SIP. You can never time the market. It is always the right time when you start investing.

Never exit out of SIP in haste, out of fear. You will certainly make handsome money with systematic investment plans.

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Bhavin Shah
Bhavin Shah

SIP are always good in the long term for Indian stock markets (especially if you have the right portfolio ).

Iqbal
Iqbal

This article is quiet good for beginner n even for who investing for long time….. Keep it up

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