A ten-year SIP can teach us many things about risk and reward. I have one running in Sundaram Midcap Fund for a relative. This was just an Rs. 500 SIP in a quiet, reasonably consistent fund. I tried this all-or-nothing idea by putting everything for that goal in a mid cap fund because I figured if I fail, I can make up for it from elsewhere.
Among other things, the first lesson is NOT to put all or most of your money in mid cap funds. I have earlier reviewed the fund: Sundaram Mid Cap Fund Review: A consistent performer. Today I would say it is a quiet fund that does not draw much attention. Ten years ago, as a rank newbie, I do not quite recall how and why I chose this! Perhaps, since my first investment was in Sundaram Tax Saver and I knew where the AMC office is, I picked this one! Read more: Ten Years of Mutual Fund Investing: My Journey and lessons learned
I had earlier written about the journey of this SIP in Mar 2018. At that time, the XIRR (annualized return) was a nice fat 20%. Things change pretty fast in this space (lesson # 2). Since things have changed quite a bit since then, a revisit will not hurt. I would like to reiterate that this was only an experiment from which I could afford to lose all. Kindly do not try this with your portfolios
The ten-year SIP in Sundaram Midcap Fund
This is the evolution of the total investment and value. Can you guess what that sharp dip is?
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Looking at this, it is quite easy and convenient to make some lazy conclusions such as SIPs make one disciplined (no they do not) and how SIPs always work in the long term (no they do not). If you wish to see what you wish to see then the rest of the article may not help. If you wish to dip deeper and understand risks, then let us begin.
First, look closely. For the first four years, the return is zero. In fact, if you consider a SIP from April 2006, the return would be zero for the first seven years! (Lesson # 3), I had then pointed out that the value can if the market corrects (hexagon) and is exactly what you see above.
The SIP value hit a peak on 1st Jan 2018 (8.5 years after inception) and for the last 1.5 years, the value has been lower than the peak. Where is the so-called risk averaging benefit of SIP? Well, it does not exist (lesson # 4). One can see this in a better way. Read more: Mutual Fund SIPs Do Not Reduce Risk! Beware of Misinformation
When the market does not move up much, there is not much correlation between the market and the SIP investment value. Once the market moves up, then the SIP value and returns depend on the market. This is the reason I talk about the SIP as a water bucket on shaky ground.
Imagine filling a bucket with small mugs of water. These mugs are the monthly instalments. Most people worry about filling the bucket when the market is shaky (when is it not?!) or worry about when to add the next instalment. They fail to realise that the bucket is on shaky ground. If the bucket falls then the SIP, no matter how old, will always result in a loss. That is the reason I keep saying SIPs do not reduce risk.
Notice that the XIRR has been falling since end-2014!! If a 20% return after 8-9 years of investing can become 13% today after ten years, there is more than a reasonable chance of it becoming single digit and FD-like if the midcap segment fails to shine for the next few years. The risk never decreases in the long term (lesson # 5), running a SIP will not help manage this risk!
I can hear you say, “Pattu, why do you keep saying the same thing again and again?” Answer: Because, each time I say it, it reaches new audiences. How do I know you ask, well that is my secret.
Summary
While I shall continue investing in this fund, I have also prepared a backup source for the intended purpose. Kindly do not assume I am against SIPs. I am only against assuming starting a SIP and running it is all that is necessary to “build wealth”. As the lessons from this ten-year SIP has shown, a lot more is necessary to reduce risk and sleep peacefully. The amount involved is so low that I never bothered. If this my net worth at stake, I would have done it differently and indeed do it differently. See: My personal financial audit 2018
Check out the latest from freefincal on Youtube
How to choose the best mutual fund portfolio
How to choose consistent mutual fund performers
Do share this article with your friends using the buttons below.
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News.Click to add freefincal as a preferred news sourceYou can also follow freefincal on Google News.Click to follow freefincal on Google News
Explore 1,400+ videos on YouTube!
Click to subscribe to the freefincal YouTube Channel
Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions!More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle.
Increase your income by getting people to pay for your skills!More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
He has over 14 years of experience publishing news analysis, research and financial product development. He has over 28 years of teaching and research experience. He is also a public speaker and keynote presenter.
He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice.
This book helps young earners get the basics right from the start! It will also help you travel to exotic places at a low cost! (3) Chinchu Gets a Superpower! for kids.
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say!
Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)
Our publications
Your Ultimate Guide to Travel. This is an in-depth exploration of vacation planning, including how to find affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)
How to profit from content writing: Our ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!
