Everyone advises you to invest in SIP for long-term.
However, what’s exactly long-term, and is there a magical SIP tenure to guarantee positive return?
In this article, we will answer:
- What’s the minimum tenure that assures positive return?
- What’s the correlation between SIP tenure and return?
To answer these questions, we used a study performed by Mint and Crisil to figure a correlation between SIP tenure and return. The study analyzed 54 mutual fund schemes—all equity and only large-caps, mid-caps and tax-savings equity funds.
Here are key data-backed insights from the study:
The magical period for positive return
As per the study, which is strictly based on past data, the period is 9 years.
In this study, none of their funds gave any negative returns over a 9-year SIP time period. But, this should not be taken for granted for two reasons:
- Firstly, the number of funds that were considered was limited.
- Secondly, there were many fund houses and schemes that got launched after 1 July 2002.
With the passage of time, this 9-year no-loss period could go down to 8 years or go up to 10 years or more. However, it’s certainly a guiding point.
Investment Period and Return
As per the data presented in the study, the shorter period you invest for, the higher the chances of your negative returns. Therefore, it’s certainly better to stay invested for the long term.
Moreover, even the volatility of returns is high for shorter SIP tenures than the long tenures.
For example, a 2-year SIP in Taurus Discovery Fund (TDF) between December 1, 2006, and December 1, 2008, gave a negative return of 66%. However, in the same fund, a 2-years SIP between 1 September 2003 and 1 September 2005 would have given you 88.36% returns.
The Methodology of the Study
For this study, a total of 54 mutual funds were analysed. Starting from 1 July 2002, the returns of mutual funds for 1 year, 1.5 years, 2 years, 2.5 years and so on; till a maximum time period of 10 years were analysed. The total period of analysis was between 1 July 2002 and 30 June 2017. Further, the frequency of SIP in this study was monthly.
As the started date was considered 1 July 2002, many prominent fund houses that were launched later, such as Mirae Asset Global Investments (India) Ltd, Motilal Oswal Asset Management Co. Ltd, Quantum Asset Management Co. Ltd, etc. were left out.