SIPs Beat Sensex in 5-Year Race, Yield Good Returns than Lump-Sum Investment

Investments in equity mutual fund schemes through Systematic Investment Plans (SIPs) has gained better returns than lump-sum unit purchases in SIPs. Buying equity scheme units through SIPs involves pre-determined periodic buying of units every month over a period of time.

In the past five years, returns of these products has fetched 10% to 18% while the lump-sum investment of the same amount five years ago has fetched 4% to 6% annually.

According to Value Research – an investment research company, over 122 funds from among 160 multi-cap diversified equity funds with over 5 years of track record have delivered a better Internal Rate of Return (IRR) than benchmark indices.

Three and five-year IRR of 30-share Sensex has generated 4.4% and 7.5% respectively. The index has fetched 11% and 13.2% compounded returns for 3 and 5 years respectively.

According to the chief executive of Reliance Mutual Fund, SIP encourages investments at all times, irrespective of the market levels. SIP investors can gain good returns if they invest in funds with good track record.

According to the chief marketing officer of SBI Mutual Fund, SIP prevents investors from trying to time the market. It enables small investments at regular intervals.

SIPs worked well even in falling markets. Investors get more units for the same amount when market falls. These units bought at lower prices will appreciate when markets perform well. Thus, the variance in performance of SIP and lump-sum investments is mainly due to reason that investors would have invested in additional units during the downturn.

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