What we can learn from a ten year SIP in Sundaram Midcap Fund

Published: August 17, 2019 at 8:04 am

Last Updated on December 29, 2021

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

Lessons from a ten year SIP in Sundaram Midcap FundThe 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?


Build a complete financial plan with our Robo Advisory Tool. More than 1000 investors and financial advisors use it!
Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)


New Tool! => Track your mutual funds and stocks investments with this Google Sheet!

Growth of the ten year SIP in Sundaram Midcap FundLooking 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.

SIP in Sundaram Midcap Fund from April 2006

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

SIPs do not reduce riskWhen 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.

Using the SIP XIRR Tracker tool, we can plot the annualized return month after month.

Month by month XIRR of Sundaram MidcapNotice 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.

Use our Robo-advisory Excel Tool for a start-to-finish financial plan! More than 1000 investors and advisors use this!
  • Follow us on Google News.
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Join our YouTube Community and explore more than 1000 videos!
  • Have a question? Subscribe to our newsletter with this form.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Get free money management solutions delivered to your mailbox! Subscribe to get posts via email! (Subscribers get exclusive discounts!)
 
Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.
  Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3000 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 what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 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 who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
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 their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & its content policy Freefincal is a News Media Organization 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 from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)