Daijiworld Media Network - Mumbai

Mumbai, Mar 25: Systematic Investment Plans (SIPs), widely seen as a simple route to wealth creation, are currently testing investor patience as prolonged market weakness and recent geopolitical tensions have dragged short-term returns into negative territory.

A sharp sell-off in equities, triggered by the ongoing Iran–Israel–US conflict, coupled with an estimated 13 per cent fall in the Nifty 50, has significantly impacted mutual fund performance. Mid- and small-cap stocks have witnessed deeper corrections, pulling down overall SIP returns.

Data shows that one- and two-year SIP returns across most equity fund categories have turned negative, marking the first such phase since the COVID-19 market crash. Even three-year returns remain subdued, largely struggling to cross 5 per cent.

Large-cap funds have delivered around -13.5 per cent returns over one year, while small-cap funds have declined by over 15 per cent in the same period. Flexi-cap and large & mid-cap categories have also recorded similar losses. However, long-term performance remains strong, with 10-year SIP returns ranging between 15 to 17 per cent across categories.

Experts attribute the downturn to multiple factors, including geopolitical uncertainty, the end of a prolonged bull run since September 2024, and a sharp correction in small-cap stocks.

Ramabhadran Thirumalai said that negative returns over short periods are a normal feature of equity investing. “SIPs are meant for medium to long-term horizons of at least three to five years. Temporary dips should not worry investors as disciplined investing typically yields positive outcomes over time,” he noted.

Advisors emphasise that investors should avoid panic decisions during such phases. Hemant Sood cautioned that stopping SIPs during downturns could lock in losses and disrupt long-term wealth creation. “The real risk is not negative returns, but investors exiting at the wrong time,” he said.

Market experts suggest that volatility can be advantageous, as SIPs accumulate more units when prices fall, potentially boosting gains during recovery. Investors with surplus funds may also consider modest top-ups during corrections.

Diversification remains key, with financial planners recommending a balanced portfolio of equity, debt, and hybrid funds to manage risk. Regular reviews, rather than frequent reactions, are also advised to stay aligned with long-term goals.

Foram Naik Sheth highlighted that short-term underperformance does not indicate a flaw in SIP strategy. “Equity investments are inherently volatile. Investors who remain disciplined through market cycles tend to benefit the most when markets recover,” she said.

Despite current headwinds, investor confidence appears intact, with SIP inflows touching record levels in 2025, reflecting continued faith in long-term investing.

Experts reiterated that SIPs work best over extended horizons of seven to ten years or more, stressing that patience and consistency remain the cornerstone of successful wealth creation.