The never-ending avalanche of economic news, geo-political developments and market predictions are the perfect conditions for some good scaremongering.
Just today, a reader informed me that he started his SIPs in 2017 and wanted to know if he should discontinue.
Exactly a year ago, I did a post titled The hardest part of investing is doing nothing. Over there, I looked at how a monthly systematic investment plan, or SIP, would have delivered over a 10-year and 13-year time frame. This covered various market highs and lows.
I briefly reproduce some data:
The annualized returns as on December 29, 2017:
10-year monthly SIP
- Best large-cap fund (HDFC Equity): 17.13%
- Worst large-cap fund (Sundaram Select Focus): 11.68%
- Best small/mid-cap fund (Canara Robeco Emerging Equities): 26.46%
- Worst small/mid-cap fund (Reliance Mid & Small Cap): 21.32%
13-year monthly SIP
- Best large-cap fund (HDFC Equity): 16.75%
- Worst large-cap fund (LIC MF Growth): 10.87%
- Best small/mid-cap fund (Sundaram Select Midcap): 21.49%
- Worst small/mid-cap fund (Aditya BSL): 19.11%
A month ago, in The 10-year SIP challenge, I revisited this topic.
An investor stated that if you set aside Rs 15,000 every single month starting this year (2019), a decade later (2029), your investment would be worth:
- Rs 34 lakh (12% annualized return)
- Rs 41 lakh (15% annualized return)
- Rs 49 lakh (18% annualized return)
Since there was criticism that the returns are too inflated, we looked at the annualized returns over a decade: What would SIPs into Total Return (TR) indices deliver?
Dec 31, 2008 – Dec 31, 2018
- BSE 100: 12.29%
- BSE Midcap: 14.67%
- BSE Smallcap: 12.01%
Dec 31, 2007 – Dec 31, 2017
- BSE 100: 13.69%
- BSE Midcap: 19.05%
- BSE Smallcap: 18.46%
The takeaway
SIPs serve a purpose: The automated process eliminates emotion, inculcates discipline, and brings a convenience to your investing activity.
Don’t stop during market slumps: That is when the benefit of systematic investing pays off tremendously.
Don’t sell during moments of panic: It is only a notional loss until you foolishly act on your impulse to sell.
Ignore the proliferation of noise. SIPs work. The returns are there for all to see.