DSP MF’s Sahil Kapoor shares three lessons for SIP investors amid market volatility

Long-term historical return for Indian stocks has ranged between 10% and 13% and around 20 percent CAGR for those in the small and mid cap space.

As markets continue to fluctuate DSP Mutual Fund's Sahil Kapoor suggests three "critical" lessons to investing in SIPs. In a note on social media platform X, Kapoor noted that data shows that nearly 3 in 4 existing SIPs were initiated after the pandemic and many who began investing in the aftermath of the pandemic have enjoyed extraordinary returns -- long-term historical return for Indian stocks has ranged between 10 and 13 percent and around 20 percent CAGR for those in the small and mid cap space.

Kapoor suggests that in a period when equity markets have been correcting, investors need to remember three main lessons.

The first lesson, according to Kapoor, is that if you start a SIP and never stop, you don’t have to do anything else.  He adds that investors don't need to even follow expert opinions. Instead, he suggests that by averaging your investments over the long term, you automatically accept average valuations, average returns, and average volatility.

Some investors, he adds, don’t even achieve average returns due to emotional decision-making. "SIP provides a structured approach that removes the need for timing the market. Stopping your SIP disrupts this compounding effect and negates its mathematical advantage," he says.

The second lesson is irrelevance of past returns on future performance. Kapoor notes that, "The returns you have made or even missed are in the past—they may or may not be replicated in the next five years." He adds that holding overvalued equity investments is similar to owning bonds with stock-like volatility. While there have been extended periods when all categories have delivered little-to-no returns, investors who continued to stay invested during those periods emerged better off than market timers and those who quit.

The third lesson is that investors need to resist the urge to "swipe start or stop". He explains that investing has now been gamified, making it easy to swipe and invest in seconds. "Unfortunately, this convenience has also increased impulsive activity. Many investors, driven by adrenaline, news, opinions, and rapid market movements, end up making frequent transactions, which only increase costs and reduce returns. Do not mistake the ease of investing for the ability to time the market," he says.

Kapoor notes that for investors who started a SIP in the last year or are considering starting now, if they stay invested over long periods ( more than 10 years), the timing of beginning their investment is irrelevant. To explain this, he takes the example of smallcaps. "History shows that even starting a SIP at market peaks, provided you focus on quality investments, allows you to stay invested longer. Why? Because initial low or negative returns help reset expectations, making it easier to remain committed. Lower expectations = higher probability of staying invested," he says.

But Kapoor says that if an investor is leveraged, or overexposed to equities, or if SIP forms an insignificant part of your portfolio, these three pointers may not be helpful. However, he adds that for disciplined investors, even bad initial outcomes should not deter investors. "When equity prices fall and NAVs decline, you accumulate more units for the same SIP amount. Bear markets in prices are bull markets in units. They allow you to accumulate more investments, potentially leading to better long-term returns—provided your underlying investments are sound," he says.

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