Which SIP is best for five years?

Published: October 28, 2020 at 6:10 pm

Last Updated on December 29, 2021 at 1:04 pm

“Which SIP is best for five years?” is a question often asked by mutual fund investors new and old. We are introducing a new category, shorts where we shall provide crisp answers to such common mutual fund questions.

We would like to first point out that this is an incorrect question. You cannot invest in a SIP. You invest in mutual funds and this means buying units. You can buy these units on any business day or on the same day each month. Buying units on the same day of the month in an automated manner is known as a SIP. So we will rephrase your question as, which mutual fund is best for a five-year SIP?

Returns from equity mutual funds fluctuate from year to year. If you invest for one to two years, the returns can just about be anything: large loss (eg. -25%) or a large gain (eg. +30%). These fluctuations will persist for any duration and certainly, over five years will not reduce significantly. See this detailed study: Sensex Charts 35 year returns analysis: stock market returns vs risk distribution

Therefore, investing via SIP or lump sum in an equity fund for five years is too risky and not recommended. This also holds good for aggressive hybrid funds; balanced advantage fund; dynamic asset allocation fund, equity savings funds etc. Just about any fund holding equity.


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The only suitable category for five years is debt mutual funds. Unfortunately even here, over a five year period, the NAV of many debt funds can fluctuate or drop due to demand and supply mismatches in the bond market.  Thus if you need money in five years, stick to one of the following fund categories

Mutual fund categories suitable for five-year investment (SIP or lump sum)

  1. Liquid funds (Quantum Liquid Fund; Parag Parikh Liquid Fund).
  2. Money Market Mutual Fund ICICI Pru Money Market Fund See Review: When & how to use it
  3. If you do not mind some volatility, you can consider arbitrage funds after understanding how they operate.

For a detailed explanation and for other investment duration, check out our handpicked mutual funds. If you are a new investor, download our free ebook: Mutual Fund FAQ 100 essential Q & A for new investors!

Free e-book: Mutual Fund FAQ 100 essential Q & A for new investors!

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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 ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, 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 promoting unbiased, commission-free investment advice.
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