A recent Economic Times report throws up some interesting trivia. India’s top equity diversified funds have returned 16% to 18% in the last 3 years.
However, SIP (systematic investment plan) investors would have earned returns in the range of 25% to 28% during the same period. That too by investing in the same funds!
So what makes all the difference is this – lump sum investors would have invested at only one level of the market. In this case, it would be 13,680 on the Sensex as on November 23, 2006. Their investments would then have subsequently gone through a rollercoaster ride of dips and surges.
For SIP investors though, they would have invested at regular intervals during this entire period. This would have ensured that they took advantage of the low market levels each time the markets went down. Thus automatically and effortlessly doing something even fund managers could not do!
Sounds good, No?
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Very misleading example. There are more examples where lumpsum outperforms the SIP. You make it seem as that because SIP gives more returns that is why one should invest via SIP. This is wrong.
The only thing SIP does is reduce risk (of investing at market peaks). Because of this, SIP can sometimes give much less returns than lumpsum.
sir,
true.
wellsaid. sip is only to minimise the risk.
thanks
Well in Hein sight it should certainly allow a SIP investor will investment at intra month bottom and thus make money a will. I suppose in that case a lump sum investor should go short moment markets have peaked and thus earn double of what SIP investor does.
What I have tried to do is for last three years hypothetically invest money in S&P 500 at the average level each month as follows;
Starting point 1/29/2007 (S&P 500 1406.82), finish 1/29/2010 (S&P 500 1073.87) resulting in annualized loss of 8.6% for three years. SIP investment at monthly average investment of $ 100 each month and final value I had was 3406 resulting in average loss of 0.43% for three years. Looks like in a long term SIP investor could have much less loss in this period, however if we change a situation a bit and instead lump sum investor to invest more practically each year say by end of Jan for last three years we realize that this (lump sum) has lost only 10bps compared to SIP investors’ loss of 43bps.
So the benefits of SIP investing really rests in disbursing the timing as you cant’ beat it and also to manage your liquidity but on a more practical approach there is no guarantee that SIP investor would beat a lump sum investor who loves investing once in a while.
For superior returns a balanced and disciplined approach on portfolio allocation across assets is necessary.
Here I would suggest a independent portfolio review from an expert or to have a Portfolio Manager at the first place is very important for a mid size retail investor.
interesting take on the subject, count me as a new subscriber!
Man what a week for the markets! I have been trading for over 20 years and have never seen the market take a dive like this week. I hope the investigation shows what happened. Funny thing though, I thought there were circuit breakers that suspended trading for a bit to let the markets settle down after a large point drop.
You should register a facebook page for the web site. Or is there already a page that I haven’t discovered?
@WeiBe Thanks. Here’s the page about my business https://www.facebook.com/pages/RupeeManager/136064904704