Systematic investment plans, or SIPs, have grown in popularity and are seeing rising retail participation. However, investors can find it difficult to stick to their SIPs, and thus, may end up missing out optimal returns.
“Only if your tenure is at least three years, you will make some money against your investment,” said Juzer Gabajiwala, director of Ventura Securities Ltd.
According to a data point shared by the Association of Mutual Funds in India, among those who continue their SIPs for more than five years, nearly 89% stop it at some point. So, you have a continuation or ratio level of 11%, Gabajiwala said.
Referring to a recent study on SIP trends by Ventura Securities, he highlighted that returns on SIP for one or two years was generally sub-optimal.
“But the moment the tenure was extended to three years, the return really went into double digits,” he said.
Investors starting an SIP during volatile years—like 2008 or 201—would see their returns turn negative because of the steep decline in markets. But the returns would turn positive if the SIP is continued for the next year, the study showed.
“We have not seen the markets being negative for more than two years at a stretch, whether in a calendar year or in a financial year. And, when you have one or two large negatives, the bounceback is equally high. So, by just extending your holding period, your entire experience can undergo a change,” said Gabajiwala.