Why staying the course on your SIPs pays off

In the past three years, equity markets have been at the forefront for many investors because of low interest rates caused by the economic slowdown due to the pandemic. The Nifty 50 slipped below 8,000 in March-April 2020 and since then it has been a rollercoaster ride. At the end of Friday’s trading, the Nifty 50 is playing hide and seek with the 17,400 levels. 

To put it in context, in the past three years, the Nifty 50 initially fell over 33% in March-April 2000, and in the next three or so years has more than doubled. That’s a compounded annual return of nearly 33%.

If you had started an SIP of Rs 5,000 per month on March 24, 2020 (when Nifty touched its lowest point of 7,511 during the pandemic) your investment of Rs 1,80,0000 would now be worth Rs 3,09,277.

When markets rise from a deep bottom, on the way up, everybody ends up making money because the whole market’s momentum pushes a lot of stock prices higher. It’s a little bit like a rising tide lifting all boats. This is what justifies the outsized returns the Nifty 50 gave in the past 3 years. In the past year, the Nifty 50 rose by just 5%. If we include dividends, the total return comes up to 9.9% (based on Nifty 50 Total Return Index). 

So what’s the point of all this juggling of numbers? Well, we are getting to it.

Stay the course

The old adage goes that timing the market isn’t important but the time you have spent in the market. This holds true today more than ever. Let’s take another example to explain this.

The Nifty 50’s total return index shows that from January 2000 to January 2023, the Nifty TRI grew at a 14.3% compounded annual growth rate. If you or someone you knew had invested in a Nifty 50 index fund over this period (yes, passive products were not available then) through an SIP, could you imagine the total return? 

Let’s put a few more numbers here. Say the SIP was Rs 5,000 a month. Over 23 years, your cumulative investment would have been Rs 13,80,000. At a 14.3% CAGR on the Nifty 50 TRI, your total investment of Rs 13.80 lakh would be worth Rs 1.07 crore. That’s 7.7X in 23 years.

If there was a Nifty 50 index fund in January 2000, many investors could have gained by just staying the course on a Rs 5,000 per month SIP. Now, this isn’t an investment recommendation and you should always consult your mutual fund advisor before taking any investment decision. But the compounding marvel only works when you stay the course after you have done a thorough due diligence after consulting your investment advisor/wealth manager/mutual fund distributor

Try to do nothing

If you consulted an advisor and created an investment plan, and based on his or her recommendations, started an SIP, then unless told otherwise during a portfolio review, try to do nothing different. There is nothing wrong in skimming the froth of your profits now and then by redeeming some of your investments, but you are still interrupting the magic of compounding.

But remember it all starts with following a process to pick your funds before you set up your SIPs and investments into mutual fund schemes. You should consult a mutual fund advisor/distributor or your financial advisor before making investment decisions. They can act as a coach to you and guide you through your investment journey.

For more on why doing nothing helps, check out this long read that illustrates how doing nothing helps investors.

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