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A study done by Tata MF shows that SIPs outperformed lumpsum in index funds in 3 and 5 year period.
A recent study by Tata MF compared the CAGR of NIFTY benchmarks through both modes of investment – lumpsum and SIPs over 1-year, 3-year and 5-year period.
The study reveals that investment through SIP gives better returns over 3-year and 5-year period. The benchmark indices considered are Nifty 100, Nifty 50, Nifty 500 and Nifty Large & Midcap 250.
1 year investment horizon
The returns for lumpsum investment are higher than SIP for all the indices over a 1-year period. However, SIP gave better returns with an increase in the investment horizon.
3-year investment horizon
For the Nifty 100 index, the 3-year lumpsum returns were at 15.5% while for SIP they were 18.2%. For the Nifty 50 index, SIP gave higher returns over 3-year period at 15.9% compared to 14.4% through lumpsum.
For the Nifty 500 index, SIP investment gave 3-year CAGR return of 21.4% compared to 18.1% through lumpsum. When it comes to Nifty Large & Mid cap 250 index, SIP investment gave 3-year return of 25.1% compared to 21.1% through lumpsum investment.
5-year investment horizon
SIP showed clear outperformance over lumpsum even with an increase in the investment horizon to 5 years.
For the Nifty 100 benchmark, SIP investment gave 19.4% returns compared to 15.7% returns through lumpsum. Similarly, Nifty 50 delivered 18.1% return compared to 14.9% return through lumpsum.
Nifty 500 and Nifty Large & Mid Cap 250 also gave high returns of 22.4% and 25.8% through SIP compared to 17.8% and 20.7% through lumpsum, respectively.
Let us look at the tabular data to know more.
Courtesy: Tata MF
Mumbai MFD Sandeep Baravkar of SRS Financial Services believes the basic nature of SIP investment leads to better performance during volatile periods. He said, “For lumpsum investment, it is very important to time the markets. If someone invested lumpsum amount just after COVID or after the start of the Russia – Ukraine conflict, they would have received better returns than SIP. However, for long-term investment which is not aimed at just timing the markets, SIP tends to perform better as an investor receives more units of the fund when the NAV goes down and less units when the NAV goes up.”
Hyderabad MFD Opinder Jain of Fin Optic Capital Services also attributes the better performance of SIP to volatility in the market due to the increase in investors in the futures and options after COVID.
