For Value Research, when it comes to the cornerstones of investing, the Systematic Investment Plan (SIP) route has always been the most important part of any investors financial life. Whether the markets are up or down is irrelevant, to make sure you get value out of your money keep the SIP running.
Therefore, it came as an unfortunate surprise, when it was widely reported, starting from 2008, that investors have been cancelling their SIP plans -- ever since the markets collapsed. To be precise from from 3.62 million SIP accounts in September last, the figure tumbled to 3.26 million by March-end 2009.
It is true that dire market conditions have spared none and SIP investments too saw deep losses. But no more so, as the situation has changed again and those who bailed out of their SIPs will be ruing their misinformed actions. The scene changed when the markets turned.
Now, with the markets in the recovery mode, the returns of diversified equity funds for those who invested regularly over the past five-year period via the SIP route as of April 30, 2009 are in the green.
While not all of the funds managed to show a positive number, yet a huge majority of them have moved into positive territory.
In fact, 85 per cent of the diversified equity funds have given positive returns over the past five years with Magnum Contra leading the pack with 16.23 per cent returns. Sahara Growth and DSP BR Top 100 Equity followed with a 15.7 per cent and 15.65 per cent returns respectively.
However, all these diversified equity funds, including the ones mentioned above, are still faring miserably over the three-year period’s SIP returns – they are all in red.
However, the idea is not to take the negative three-year SIP returns to heart. It must be understood that SIPs are meant for the long term. That is also why we are seeing funds giving positive returns over the five year time horizon. The basic rationale behind doing an SIP is to invest systematically in a disciplined manner irrespective of the direction that the market takes. Lastly, it is important to know that SIPs do not guarantee profits under all circumstances but they are effective vehicles for wealth creation over the long term.