Yes, a Systematic Investment Plan (SIP) can incur losses over the long term, although it is less common than in the short term. While SIPs offer rupee cost averaging to mitigate market volatility, they are not immune to market risk, and a prolonged market downturn or structural decline in the chosen asset class can result in negative returns over a 5-7 year period.
Equity SIPs carry market risk. Can SIPs give negative returns? Yes, especially over short periods during market downturns. Staying invested through the cycle is key.
However, many investors often wonder: Can a SIP go into losses? The short answer is yes. SIP loss can occur if the value of the underlying assets in the fund decreases, causing the NAV of the fund units to fall below the NAV at which you invested.
A Systematic Investment Plan(SIP) is a very safe method to invest in mutual funds for the long term. You can choose to invest a lump sum amount or through a SIP-based on your financial capabilities. The main difference between a SIP and a lump sum amount is the frequency of investment.
3,000 monthly in SIP for 5 years, assuming a compounding return rate of 10%, your investment is estimated to grow to approximately Rs. 2,34,237. Monthly SIP amount: Rs. Expected annual return: 12% (This is a long-term average and actual returns may vary)
Consistently achieving 40% returns in SIPs is highly unrealistic and involves very high risk. Historically, some top-performing funds like Quant Active Fund have given returns around 31% over five years. Investment performance varies.
The final value of the investment depends on the rate of return of the mutual fund scheme. Assuming an average annual return of 12%, the approximate future value after 10 years would be around Rs. 46.40 lakh.
Investors may stop or pause SIPs for reasons such as financial emergencies, mutual fund underperformance, volatility, etc.
FDs guarantee capital safety and fixed returns, making them ideal for short-term needs or risk-averse investors. SIPs, however, offer the potential for higher, inflation-beating growth over the long run, compensating for market risk. For many, a balanced portfolio using both is the smartest strategy.
SIP investments don't work in bullish markets or when market rises up over time. When market goes up and keeps growing over time, the units bought each time are at high value than the previous one, which can ultimately bring the average value up, compared to the lump sum investment at the beginning.
However, investors using Systematic Investment Plans (SIPs) saw remarkable success. A staggering 97% of mutual fund schemes delivered positive returns, with some achieving XIRR up to 37%. This demonstrates the power of disciplined, regular investing over market timing.
SIPs don't promise guaranteed returns. Like any market-linked investment, they carry risk. The key is consistency and long-term commitment—not short-term gains. Many think SIPs only work when markets are falling.
There is no maximum tenure of a SIP. You can invest as long as you can. The minimum tenure you can go for is 3 years.
Although a SIP is safe, it is not entirely risk-free. So, before you start a SIP in the mutual fund of your choice, you need to be aware of the risks involved. Do note that most of the risks listed below are not entirely tied to the SIP itself, but often stem from the mutual fund schemes or the market in general.
Risks of Stopping SIP
By stopping your investments, you lose the chance to buy units at lower prices, which could lead to higher returns later. Additionally, stopping your SIP can disrupt your long-term financial goals, making it harder to build wealth over time.
PP = monthly SIP amount, rr = monthly rate of return (annual return/12), nn = total number of months (60 for 5 years). Using this, a ₹1,31,597 monthly SIP at 9% annual return compounded monthly can grow to ₹1 crore in 5 years.