They are now reaping rich rewards.
For the record, investors have earned on an average annualized returns of 13-14% on their SIPs for a period of 5 years. Over three years, the return is even higher at 17-19%. These returns are sharply higher than what would be major losses at the end of FY20, data from NJ wealth investors showed.
The impatient – and the faint-hearted – stopped their SIPs randomly through the pandemic on concerns the markets would fall further. And, indeed, they ended up losing money.
“SIP is a strategy in which you get the benefit of rupee cost averaging,” said Amol Joshi, Founder, Plan Rupee. “Getting out when the markets fall could defeat the purpose of investment.”
Wealth managers also believe that while SIPs are a good tool to accumulate money for a goal, investors should execute these with a plan in mind. They need to exit these investments when they reach their goal even if it means exiting early to protect capital.
“It is necessary to add a time buffer period of 6-12 months to the goals you plan to reach with your SIPs so that you can safely withdraw and keep money aside when your target is reached,” said Rushabh Desai, Amfi Certified Mutual Fund Distributor.
While planning for a 10-year goal, investors should have a buffer period of 6-12 months where they can withdraw and be in a liquid fund.
Over the last three-to-five years, many first time investors have taken the SIP route to meet their financial goals. Indian mutual funds have currently about 34.1 million SIP accounts.
Inflows into SIPs fell from Rs 8,500 crore per month in March 2020 to about Rs 7,800 crore every month In November 2020. During 2019-2020, investors have poured a total of Rs1 lakh crore through the SIP route, while in the first eight months of the current financial year, they have added Rs 62,929 crore.