Mutual fund investment: Investing in mutual funds via Systematic Investment Plan (SIPs) route is one of the most popular ways. However, investors should note that constantly changing the mutual fund scheme and opting for better returns could fail and may not give desired results. A recent study by WhiteOak Capital Mutual Fund, which took the data of 19 years into consideration, states that investing in a single index might be a more prudent strategy. The report said an investor, who for instance started a SIP in a mid-cap or small-cap index fund in April 2005 and has invested in the category for 19 years, has earned higher returns in the same timeframe as compared to the one who changed the SIP annually based on the best-return generating category in the previous year. The study analyzed the performance (XIRR) of SIPs over a 19-year period (FY06-FY24). There can be two scenarios as per the study: 1. Investing in one index As per the study, maintaining long-term investments in the same mid cap or small cap index since FY06 has yielded higher XIRR compared to annually switching to the best-performing indices. Although Small Cap and Mid Cap indices have generally outperformed Large Cap indices over the past 19 years, there have been intervals where Large Caps led in performance. Specifically, SIPs in the Large Cap segment outperformed seven times within this period, while SIPs in both the Small Cap and Mid Cap segments each outperformed six times. This underscores the unpredictability of market cycles and suggests that adhering to a diversified index can provide greater stability. An investor who had continued SIP with the Mid Cap Index only without changing to the best-performing index of the previous year would have generated an XIRR of 18.1 per cent (as of 1 April 2024) as against 15.5 percent if annually changed to the best-performing index of the previous year. On similar lines, a SIP started in the Small Cap Index would have generated XIRR of 16.0% (as of 1 April 2024), as against 15.1% if changed annually. The report said: "If looked at 10 Years Rolling SIP Return, the average XIRR for SIP continued in Mid Cap Index is 16.6%, as against XIRR of 14.5% for investor who started SIP in Mid Cap Index and switched based on previous year best-performing index. Similarly, average XIRR for SIP continued in Small Cap Index is 14%, as against 13.9% if switched based on previous year best-performing index." The Large Cap Index, Mid Cap Index, and Small Cap Index are represented by the Nifty 100 TRI, Nifty Midcap 150 TRI, and Nifty Smallcap 250 TRI, respectively. The rolling SIP return period spans from April 1, 2005 to April 1, 2024 (with the first observation on April 1, 2015). The mean returns—calculated as the average of the ten-year rolling returns between June 1, 2013 and May 30, 2023—for Sensex stand at approximately12.64%, while those for Nifty50 are around 12.93%. Retail investors frequently pursue top-performing schemes based on past performance. Financial planners caution that this behavior often leads to investing in themes that have already peaked, thereby diminishing potential returns. According to WhiteOak Capital Mutual Fund's report titled 'Staying on Course', maintaining a consistent investment strategy is more advantageous than frequently altering one's approach. Such frequent changes can be both stressful and detrimental. Consequently, investors are advised to remain committed to their SIPs over the long term to achieve their ultimate financial objectives.
