SIP VS LUMPSUM - DOES THE THEORY ALWAYS WORK READ ON

In a highly volatile market, the SIP (systematic investment plan) is considered better than lumpsum investments. Mutual funds too advocate this method to weather volatile markets. But the numbers suggest a different story. Investors who preferred lumpsum investments over SIP three years ago seem to have harvested better returns.

Business Line analysed 157 equity schemes that have at least a three-year track record. The top performers — those in top quartile in terms of returns generated from lumpsum investment — have a large-cap stock focus. Extending the period of returns to five years did not mean any significant change in inference. However, return divergence was huge in the top quartile.

While ICICI Prudential Infrastructure Fund generated a compounded annualised return of 18.4 per cent over a three-year period, Magnum Equity was at the bottom of the quartile, generating a 10.5 per cent return.

In SIP mode, though, none of these schemes achieved returns matching the lumpsum investment. Several of them trailed by 4-5 percentage points. The best among the SIPs was IDFC Premier Equity; it has clocked a 12.9 per cent return but trailed the lumpsum investment by 2.7 percentage points.

Over a three-year period, the value of a monthly investment of Rs 1,000 for 36 months between June 20, 2006 and May 20, 2009 stands at Rs 41,778 now. DWS Investment Opportunity (Regular) was at the bottom of the top quartile in terms of returns and finished with a 4.0 per cent return over the same period (Rs 36,000 — invested over 36 months — was worth Rs 38,299 as on May 26).


Most of the top quartile equity schemes fared better than the bellwether indices. The SIP return through S&P CNX Nifty for a three-year period is 6.4 per cent and the broader benchmark CNX-500 clocked 4.3 per cent.

During this highly volatile period, diversified funds performed better than thematic funds. Of the top quartile, four schemes had an infrastructure theme. SIPs are not a bad investment decision over the long run. The timing of the entry and continuity also makes a difference. Most investors start investing after a market rally but stop doing so once the market starts falling. Such a strategy, in turn, affects the overall performance.