How to Review Your Mutual Fund SIPs

Published: March 16, 2016 at 9:51 am

Last Updated on October 8, 2023 at 1:32 pm

A simple method to review your mutual fund SIP investments by tracking the month-on-month returns is discussed.

In a previous post, the data presented for 10-year SIPs had a huge spread. Analysis: 10-year Lump sum vs 10-year SIP returns

That alone should be clear to you that one cannot simply let the SIPs continue hoping for equity to reward you for your ‘discipline’ as marketed by the mutual fund distributors.

In this post, I consider the 10-year SIP returns of one equity mutual fund category- multicap funds as defined by Value Research.


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10-year-sip-returns

There is only one fund in bin A – ICICI Value Discovery – an exception as it changed color from mid-cap to multi-cap. Sankaren Naren recently said it will continue to have a large cap-tilt in future.

With the exception of about 5 five funds in F, all other funds have managed double -digit SIP returns over the last 10 years. Not bad at all. If other categories are considered, there would be more funds in F and a and a  too!

I recommend using the Mutual Fund SIP XIRR Tracker to see how the fund has fared with respect to its benchmark month after month  from the date you started your SIP.

This is key for any mutual fund review. You judge the fund from the date you started investing in it. Star ratings are between any two arbitrary dates.

Example: IDFC Premier Equity is a mid-cap fund (so I do not wish to provide data here). Use the above tracker for a SIP started in April 2006. You will find that the fund has outperformed its benchmark every month! Yet its current star rating is 3-star. Star ratings = noise.

Now, here are screenshots from the tracker tool for one fund in each of the above bins.

10-year-sip-returns-A2
Bin A
10-year-sip-returns-B
Bin B
10-year-sip-returns-C
Bin C
10-year-sip-returns-D
Bin D
10-year-sip-returns-E
Bin E
10-year-sip-returns-F
Bin F

 Except for the last bins (E,F), the funds chosen in each category have beat their benchmarks with reasonable consistently.

The percentage out performance, which is cumulative, should increase for a fund that manages to beats a SIP in its benchmark. Any prolonged under performance is a red flag.

The problem is with the definition of ‘prolonged’. You can come up with your own definition. In my opinion, 1 year is too short. Three years or four years is probably reasonable and just right. Five years is perhaps lenient!

If the fund is struggling to beat its benchmark over this period, chuck it.

Do not get married to your SIPs. The mutual fund industry would like nothing better! If you like SIPs set it up for no more than 3 years because stopping is not easy (guess why?). Otherwise stick to manual monthly investing.

Download the Mutual Fund SIP XIRR Tracker

Give this tool a go and let me know if it can be improved.


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