The last few weeks have been disheartening for equity market investors. Waiting for 5 long years only to see dismal returns from their equity SIPs is not what long-term investors were expecting.
This is no doubt extremely painful and annoying.
While subpar 5-year SIP returns are not very common, they are not an impossibility. They have occurred occasionally in the past too.
Unfortunately, the current times are one such period.
The key is to find out what happened to investors in the past, who had decided to continue with their SIPs for a little longer.
We have gone back 25 years in time (since 1995) and analysed the long-term returns (5-10 year) for a monthly SIP starting in Jan-95, Feb-95, Mar-95 and so on till date.
Since 1995, there have been 40 months (17% of total instances), where a 5-year SIP in the Nifty 500 TRI index gave annualized returns of less than 5%.
- In 17 out of these 40 instances, had you extended the SIP for just one more year (i.e for a 6-yr SIP), the returns significantly improved to more than 13% and the average return was 18%
- For 15 out of these 40 instances, had you extended for two more years (i.e for a 7-year SIP), the returns significantly improved to more than 11% and the average return was 15%.
- In the remaining 8 instances, had you extended for three more years (i.e for an 8-year SIP), the returns significantly improved to more than 12% and the average return was 14%
While the occurrence of such 5-year SIP periods with muted returns is not very common, whenever they happened, investors who continued their SIPs for another 1-3 years without panicking, had a significant recovery in returns (to above 12%).
So, keep calm and stay invested.
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