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Many investors chase best performing funds of the previous year and make changes to their SIPs. However, a study conducted by WhiteOak Capital Mutual Fund reveals that switching across schemes based on the previous year's performance leads to suboptimal performance of the investment portfolio in the long run.
The study analyzed mutual funds returns over the past 19 years and found that investors who remained in a mid or small-cap index fund since 2005 earned higher returns than the ones who switched their SIPs annually.
The study reveals that an investor who began a SIP in a mid-cap fund in April 2005 and stayed invested in it until April 2024 would have earned 18.1% annual returns. Whereas, an investor who switched to the previous year’s best-performing fund at the start of each financial year from 2005 to 2024 would earn annual returns of 15.5%.
If we look at the 10 years SIP return for the continued mid-cap index, the annual return is 16.6%. On the other hand, investors playing the switching game ended up with 14.5% returns.
The study also revealed SIP performance insights between April 2005 and April 2024 with the large-cap segment (Nifty 50 TRI) emerging as the top performer seven times. On the other hand, both small-cap and mid-cap segments represented by Nifty Smallcap 250 TRI & Nifty Midcap 150 TRI each claimed the top slot six times, respectively.
This study by WhiteOak Capital MF concretes the fact that sticking with a chosen investment category leads to better returns. Consistency is the key!
