An ambiguity surrounding the MF industry’s popular debate i.e. ‘funds’ returns v/s investors returns’ finally ends, well to some extent.
The latest Value Research data shows that investors who invested in mutual funds through SIPs have not only generated more returns than their lump sum counterparts have made, SIP investors have outperformed their funds’ returns too over the last ten years.
While SIP investors have earned 10 year CAGR of 11.50% across all equity funds, market timers witnessed 10 year CAGR of 9.56%. In the corresponding period, the category average returns of equity funds stood at 11.03%. The study has considered equity funds across categories that have a minimum track-record of 10-year history as of November 2019.
Such a difference is acute in categories like small cap funds, as SIP investors have generated 5% more returns than market timers. In large cap funds, such a difference was 1.44%.
The report attributes this to investors behavioural bias in which they invest in mutual funds hoping to make astounding returns but are not able to digest volatility. As a result, these investors (market timers/lump sum) do not participate across cycles, says the study.
Ajit Menon, CEO of PGIM India believes that SIP is a convenient way to invest for individuals having a regular income. Since it is a disciplined way of investing, it allows investors to overcome behavioural biases and keeps them on track to achieve their goals.
Sunil Subramaniam, CEO, Sundaram MF feels that SIP is a great innovation for the MF industry. “When you have a monthly income and wish to create long-term wealth, it is better to opt for SIP route. However, this does not mean lump sum investment has lost its utility. Lump sum investment is an effective way of investing into mutual funds, if you get your asset allocation right.”
|
Category |
Media returns (%) |
||
|
Intermittent |
Fund return |
SIP |
|
|
Small cap |
6.27 |
11.64 |
11.26 |
|
Value |
7.92 |
11.36 |
11.77 |
|
Mid cap |
11.31 |
13.99 |
13.55 |
|
Sectoral/ thematic |
8.82 |
10.96 |
10.35 |
|
Multi cap |
9.87 |
11.59 |
12.22 |
|
Large & mid |
10.25 |
11.28 |
12.45 |
|
ELSS |
10.32 |
11.21 |
11.94 |
|
Large cap |
9.56 |
10.04 |
11 |
|
Aggregate |
9.56 |
11.03 |
11.5 |
Source – Value Research
