New Delhi: Systematic investment plans for mutual fund investment, popularly referred to as SIPs, are turning into a cult for the retail Indian investor. The convenience of building assets over the years without straining one’s pockets attracts the common man. AMFI data show that inflows through the SIP route are rising every month. Significantly, if you go really long-term, the chances of negative returns virtually vanish, according to a recent study by Whiteoak Capital.
There can be no bigger relief than this finding, since risk, no matter how understated, remains a fundamental element in the matrix of every investor in market-linked products. In fact, Whiteoak Capital states that the scare of negative returns vanished completely in 8 years.
Minimum returns on SIP mutual fund investments
The calculations were made based on %XIRR rolling returns on a monthly basis for the BSE Sensex Total Return Index (TRI) for SIPs between September 1996 and May 2024. XIRR stands for Extended Internal Rate of Return. It is used to compute returns when a number of transactions take place at different time points which is the case with SIPs.
The firm’s calculations show how the chances of negative returns diminish with time:
If one takes a 3-year-period under consideration, the minimum returns one could expect from SIP is (-)36.2 per cent.
If the time horizon is expanded to 5 years, the minimum returns rise to (-)10.5 per cent.
If the time period is extended to 8 years, the minimum rate of return crosses from the negative territory to turn positive and stands at 1.4 per cent.
Remember, this is the scenario when one is speaking of the “minimum returns”.
What happens to mutual fund SIP returns after 8 years?
As one keeps prolonging the SIP, the minimum returns continue to expand:
It rises to 4.6 per cent in 10 years
The returns rise to 6.2 per cent in 12 years
Minimum SIP returns may jump to 7.4 per cent in 15 years
Chances of over 12 per cent returns are as follows:
69 per cent in 8 years
79 per cent in 10 years
90 per cent in 15 years
The survey has come up with some interesting findings. If one digs one’s heels for more than 10 years, the chance of raking in over 8 per cent returns becomes 99 per cent. For the same period, one stands a 95% chance or slightly more of earning returns for over 10 per cent.
Here are the calculations for average returns per investor:
Tenure (in years)
Returns (in %)
3
12.9
5
15.2
8
16.2
10
15.6
12
14.6
15
14.3
Patience is key in SIP mutual fund investment
“When you find that your SIP returns are in the red, the first and most important thing is to stay calm and to adopt a strategy that can help you understand the situation better,” according to non-bank lender Bajaj Finserv, in an advice for investors with a focus on young investors. Then it lists out a few dos and don’ts, the first of which is “Don’t redeem your investments in a rush.”
“I always advise people to invest in the long term. Creation of assets essentially needs a long-term disciplined approach. The markets have never given negative returns if you stay invested in the long term,” says Prasunjit Mukherjee, CEO, Plexus Management Services and a veteran in the field of mutual funds.
Mutual fund investment: In an MF investor continues to put his/ her money in a scheme via SIP for more than 8 years, they will never rake in zero returns, according to a study by Whiteoak Capital. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
