Patient investors reaped rich rewards over past yr

Those who continued SIPS saw double-digit returns, says IDFC MF

Indian investors who remained patient during the volatile period in the equity markets over the past year were rewarded handsomely, says a recent note by IDFC Mutual Fund (MF). It shows that those who continued with their systematic investment plans (SIPS) saw double-digit returns.

If an investor started an SIP in a S&P BSE 100 TRI in August 2019 and stopped in July 2020, then they would have seen returns of 8.2 per cent. However, if the SIP was continued till July 2021, then the investor would have seen returns of 34.2 per cent over the two-year period.

Amongst the equity indices, the small-cap index (S&P BSE Smallcap TRI) has generated the highest SIP returns over the two-year period, rising above 75 per cent. “Data indicates that, investors who showed patience during the tough times by not redeeming from equity markets but continuing to invest via SIP benefitted significantly, as all main indices have turned from negative to positive and generated doubledigit returns over both twoyear and three-year periods,” said Sirshendu Basu, head of products at IDFC MF.

Similarly, if the SIP was continued for another year; all the indices generated double-digit returns over three years. Twoyear SIP return on S&P BSE 250 Largemidcap TRI index as on July 2020 stood at 2.3 per cent, while it increased to 25.5 per cent by July 2021. Over three years, ending July 2021, the small-cap index provided returns of 46.2 per cent, followed by the mid-cap index, which was up 31.6 per cent.

In March 2020, Indian equities crashed because of the rising Covid-19 cases in India, coupled with poor global outlook, and stringent lockdown to contain the spread of the virus. However, the markets bounced back and posted strong returns in subsequent months.

With equity markets continuing to rise, several investors pulled out money from equity funds. In the period between July 2020 and February 2021 equity funds had seen net outflows of over ~46,700 crore.

“As equity markets were on an upward trajectory in calendar year 2020 (CY20) after the pandemic-induced fall in March 2020, investors turned cautious and were redeeming from equity funds. Since the rally was sharp and market sentiment was weak, investors chose to sit on the sidelines,” said ICICI Direct Research.

Market participants say investors should always have a long-term view while investing in equity as returns are better then as compared to the short term. In the past year, large-cap funds have on an average generated returns of 44.85 per cent, while over 10 years it has managed to provide returns of around 14 per cent. Similarly, the mid- and small-cap funds have generated average returns of 18.35 per cent and 19 per cent, respectively, over a 10-year period.

“Many investors try to time the market and exit when there is sharp correction and enter when there is euphoria. Instead, they will be better off if they continue to invest for 10 years or more and get superior risk-adjusted returns,” said a top official from the MF industry.

Value funds will continue to do well if the economy recovers and there are earnings upgrades. Fund managers say that if the economy slips and market falters, it will be difficult for value funds to perform, and growth and quality stocks might make a alters, it will be difficult for value funds to perform, and growth and quality stocks might make a comeback.