SIPs Decoded: 4 Approaches to Grow Your Mutual Fund Investments

Introduction

When it comes to investing in mutual funds, especially through SIPs (Systematic Investment Plans), investors often wonder which strategy is best for steady, long-term growth. With market corrections sparking uncertainty among new investors, we analyzed four different SIP strategies starting from December 31, 2002, to understand how each approach performs across market cycles. Here’s what we found and how you can apply it to your investment journey.

Methodology

Overview of the 4 SIP Scenarios

1. Lage Raho — Continuous SIPs
   Approach: Invested consistently regardless of market conditions.
2. Top-up — Annual Increase by 10%
   Approach: SIP amount increased by 10% every year, simulating a growing income or greater commitment over time.
3. Mauke pe chouka — Lump Sum on Market Drops
   Approach: Every time the market dropped by 15%, a lumpsum of 5 times the SIP amount was added, targeting potential buying opportunities during corrections.
4. Darr— Pause During Market Declines
   Approach: No investments were made during market declines of 15% or more, with SIPs resuming only after the market recovered.
5. Other considerations:
   To maintain comparability, XIRR was used across these four categories

Analysis of Each Strategy

1. Lage Raho — Continuous SIPs
   Result: XIRR: 14.16%
   This scenario yielded the highest returns, underscoring the benefits of regular, disciplined investing. The “Lage Raho” approach effectively leverages rupee cost averaging, where investments are made consistently regardless of whether the market is up or down. This helps investors accumulate more units during downturns, ultimately leading to higher returns as the market recovers.
   Takeaway: Consistency pays off. This approach is ideal for those who are willing to stay the course.
2. Top-up — Annual Increase by 10%
   Result: XIRR: 14.04%
   In this scenario, increasing the SIP by 10% each year provided slightly lower returns than “Lage Raho.” However, it is a good fit for investors with rising incomes, who can afford to commit more over time. While the XIRR is marginally lower, the strategy effectively builds a larger corpus by leveraging compounding on increasing amounts.
   Takeaway: Growth aligns with income. Ideal for those who expect rising incomes or are willing to gradually increase investments.
3. Mauke pe chouka — Lump Sum on Market Drops
   Result: XIRR: 13.80%
   This strategy targeted additional investments during market dips by adding a lumpsum five times the SIP amount when the market fell by 15%. The logic here was to capitalize on “buying low” opportunities. However, the results showed a lower XIRR than continuous investing, suggesting that while timing the market is attractive, it often does not outperform consistent, regular SIPs.
   Takeaway: Timing isn’t easy. Though it seems tempting to buy during dips, the results indicate that consistent investing often performs better.
4. Darr — Pausing During Market Declines
   Result: XIRR: 13.82%
   The “Darr” approach stopped investments during downturns (15% or more), resuming SIPs only once the market recovered. This cautious approach yielded slightly better results than “Mauke pe chouka” but still underperformed compared to consistent SIPs. By pausing during dips, the strategy missed potential opportunities to accumulate units at lower prices.
   Takeaway: Avoiding downturns limits growth. While appealing for risk-averse investors, avoiding dips can miss out on potential gains.

Key Insights

1. Staying Invested Wins
The “Lage Raho” strategy demonstrated that consistent SIPs, regardless of market conditions, produced the highest returns. This method capitalizes on market lows and allows investments to compound over time.

2. Incremental Top-ups Show Potential
For investors who expect their income to grow, the “Top-up” strategy provides a solid balance between growth and steady investing. Although it yielded a slightly lower XIRR, it allows for flexibility as your financial capacity increases.

3. Timing the Market Is Challenging
Both the “Mauke pe chouka” and “Darr” strategies, which attempted to time market entry, showed lower returns. The key lesson is that predicting and reacting to market declines often results in missing out on recovery gains.

4. Risk Tolerance Matters
Investors with low risk tolerance might find comfort in “Darr,” which pauses investments during significant declines. However, the data suggests that even risk-averse investors could benefit more from consistent investing.

Conclusion

This analysis highlights that staying the course is generally the most effective approach for SIP investors. For those looking to optimize returns, a simple, regular SIP strategy may outperform more complex timing-based methods. If you’re considering an increase in your SIP over time, the Top-up strategy offers a flexible path with near-optimal returns.

Ultimately, time in the market is better than timing the market and SIPs work best when left to run uninterrupted, allowing the power of compounding to build wealth steadily over the years. For new investors or those uncertain about market corrections, this data provides a clear takeaway: stay invested, stay disciplined, and let time do the work.

For others who have seen market cycles and are in the game of wealth creation, while the XIRR numbers may seem modest, it’s important to remember that wealth accumulation in absolute terms can be substantial in strategies like the “Top-up” and “Mauke pe chouka”.

The key takeaway? Consistency in SIPs can help smooth out the ups and downs of the market, but if you have the financial flexibility, top-ups or selective lump-sum additions can enhance your wealth-building potential.

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Disclaimer: We are not SEBI registered advisors. Any content shared on or through our digital media channels is for information and education purposes only and should not be treated as investment or trading advice. Please do your own analysis or take independent professional financial advice before making any investments based on your own personal circumstances. Investment in securities is subject to market risks; please carry out your due diligence before investing. And last but not least, past performance is not indicative of future returns.