Marriage or SIP: Stay Put for 7 Years & Reap the Rewards - Motilal Oswal Mutual Fund
What we Looked at?.
We understand that people generally do not continue Systematic Investment Plans (‘SIP’) for 20 Years. At least not generally. So, we will talk about only 7Y SIP’s in this analysis. While 5-year and 10-year SIP returns are also included, we will primarily discuss the 7-year SIP data
ALL Monthly Rolling SIP Returns of Nifty 100, Nifty Midcap 150, Nifty Smallcap 250 and Nifty 500 Multicap 50:25:25 Indices from Apr 2005 to Now. Basically, over last 20 odd years. No Selectivity. (The period covers significant market events such as the Global Financial Crises Period of 2008-09, Slump by 2013, Includes Covid period. Both SIP Started and Ended during these periods; are included in the analysis. )
So, this analysis is of
5 year SIP’s - Total 170 SIP Series of 5 years Each
7 year SIP’s – Total 155 SIP Series of 7 years Each
10 year SIP’s – Total 119 SIP Series of 10 years Each
The SIPs are assumed to have started on the 1st working day of each month. The returns depicted are calculated using XIRR at the end of the respective SIP periods, with the valuation based on the first working day of the month following the SIP period.
What did we find?
We Will Only Talk about Worst case scenario historically and Only about Mid & Small Caps, because that is the concern raised. Everyone knows benefits of SIP; Average SIP Returns and Upside are well-known and are also shown in the attached data tables and graphs
Probability of Loss 7Y SIP - Mid Cap 0.0%. Small Cap 5.8% (Large Cap 0.6%). Out of 155 Monthly SIP series, only 9 Series of SIPs in Small caps ended the term at a loss. None of the SIPs in Midcaps ended in a loss.
Worst Loss Smallcap -7.3%. An interesting observation is that the worst returns across all categories (Large Cap, Mid Cap, Small Cap, and Multi-Cap) and across 5-year, 7-year, and 10-year SIPs occurred in March 2020.
What’s important is at that time, instead of redeeming (Lock, Stock or Barrel or Otherwise ) if you would have stayed put for just 1 More Year without even continuing your SIP, your experience would have been extremely pleasant. Just like as they say, when in distress; sleep over it. Same way, just remain invested and tide over the market turmoil.
Conclusion:
Be faithful in marriage and disciplined in SIP for at least 7 Years, tide over the itch. if you are going to do SIP for 7 Years, then might as well be with a proposition (Market Cap Segment) which rewards that patience (Check the table on 1 st page for return proposition for different baskets)
Annexure
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