A sharp decline in equity markets has unsettled many retail investors, especially those investing through systematic investment plans (SIPs). With the Nifty 50 down more than 8 per cent so far this year, hit by global uncertainty and rising crude oil prices linked to the US-Iran tensions, short-term SIP returns have taken a hit, leaving many questioning their strategy. For investors who began SIPs recently, the downturn has translated into negative one-year returns across categories, prompting some to halt contributions.
This shift is reflected in a spike in the SIP stoppage ratio, which reached 100 per cent in March, indicating that more SIPs were discontinued or matured than newly initiated. Market volatility intensified in March, when the Nifty 50 dropped 11.3 per cent amid escalating geopolitical concerns. As a result, one-year SIP returns acrossequitymutual funds turned negative.
Flexi-cap funds saw average one-year SIP returns of negative 17.63 per cent, while large-cap funds recorded negative 17.2 per cent. Large and mid-cap funds delivered a negative 16.2 per cent, mid-cap funds declined 14.45 per cent, and small-cap funds dropped 17.88 per cent. Multi-cap funds also struggled, posting average one-year returns of negative 16.69 per cent, according to a Mint report.
Even over three years, returns have moderated significantly. Flexi-cap funds offered an annualised return of just 1.97 per cent, while large-cap funds stood at 1.69 per cent. Mid-cap funds performed relatively better at 5.59 per cent, though still far below expectations seen during bullish phases.
Why SIP Returns Look Worse In Early Years
A key factor behind these disappointing returns lies in how SIP performance is calculated. Returns are measured using XIRR, which factors in the timing of each investment instalment. In the initial years, most contributions haven’t had enough time to benefit from compounding. If markets decline during this period, returns appear disproportionately weak because recent investments are immediately exposed to falling prices.
Over time, as the investment corpus grows, earlier contributions begin to drive returns more significantly. This reduces the impact of short-term volatility and allows compounding to work more effectively.
Market corrections are when SIPs demonstrate their core strength, rupee cost averaging. Investing a fixed amount regularly means buying more units when prices fall, lowering the average purchase cost.
“Rupee cost averaging works well when markets are volatile, sideways or in a bearish phase,” said Amol Joshi, founder of Plan Rupee Investment Services, in a Mint report.
This principle ensures that investors accumulate more units during downturns, which can lead to stronger gains when markets recover. Pausing SIPs during such phases often results in missing out on these lower-cost opportunities.
Source: India Latest News, Breaking News Today, Top News Headlines | Times Now
