Is mutual fund SIP an all-weather investment tool?

Recent data on Systematic Investment Plans (SIPs) shows that monthly flows are increasing 12,000 crores. Despite this steady increase in SIP inflows, Mutual Funds (MFs) still have a long way to go as an investment avenue, even though it’s one of the best ways to invest for any financial goals. In fact, many investors have yet to begin their MF investing journey.

SIPs are crucial when it comes to building a corpus over a period of time. Many people invest through SIPs and increase the amount regularly. Due to their long-term nature, SIPs most likely go through several different stock market phases.

When it comes to investing, there’s a lot of debate that how we behave as investors is more important than our investments. When stock markets go up, everyone feels like they are in control of their investments by looking at the rate of growth. However, the key is to have a similar discipline even in uncertain times.

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When looking for the right MFs to invest in, let’s look at how these funds have performed in good times and bad. How we behave in such times is just as important.

As we all know, on March 23, 2020, the stock market is down 38% from its peak in January 2020 and has remained volatile for some time. Many investors have rightly invested in these uncertain times to benefit from the falling market. Most of these investments came in the form of lump sums and worked well for them. However, some investors considered pausing or stopping their SIPs when the stock market was volatile between January 2022 and June 2022. Such thoughts are natural. A rapid decline in portfolio returns may prompt investors to make such a decision. However, this may not be the best course of action.


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Let’s look at three investment scenarios if we had a monthly SIP of 5,000 into a Nifty Index Fund in January 2019 and how those investments would have performed (see chart). Here the index fund is considered just as an example, you can build the mutual fund portfolio with the help of other stock diversified funds along with index funds.

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In volatile times, many investors think the market could fall further and SIPs could stop. However, such a response comes at a cost. It affects the total return (see table). The growth rate of uninterrupted SIPs continues to deliver better results compared to those that are paused and restarted. Plus, it also helps stay on track from a goal-oriented investing perspective.

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SIP is a powerful and reliable tool when it comes to investing through mutual funds, especially for those who build their portfolio step by step to achieve their goals. There are many benefits of staying the course and standing firm at all times when investing through SIPs. As we can see, in all three scenarios, it wasn’t the behavior of the stock market or the index fund that led to different investment returns, but how we reacted and managed our investment that made the difference.

Harshad Chetanwala is a Sebi registered investment advisor and co-founder of MyWealthGrowth.

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