In personal finance seminars, advertisements, and casual conversations, one phrase is repeated endlessly: “If you invest through a Systematic Investment Plan (SIP), you will always get positive returns in the long run.”
This narrative has gained cult-like status in India and other markets where mutual funds and SIPs are promoted as the best path to wealth creation. Brokers, fund houses, and even regulators have reinforced the belief that disciplined monthly investing guarantees growth — regardless of timing, fund choice, or market conditions.
But is this true? Do SIPs always generate positive returns if investors hold long enough? Or is this another financial myth built on selective data, optimistic assumptions, and marketing spin?
This article critically examines the myth of SIPs always giving positive returns: how the belief arose, what the data really says, the risks hidden beneath, and why investors need a more nuanced understanding.
What Is a SIP?
A Systematic Investment Plan (SIP) allows investors to contribute fixed amounts at regular intervals (usually monthly) into a mutual fund.
Benefits promoted:
- Rupee Cost Averaging: Buying more units when prices are low and fewer when prices are high.
- Discipline: Encourages regular savings and investment.
- Accessibility: Small, consistent contributions build wealth over time.
- Compounding: Returns accumulate as investments grow.
These advantages are real. But the leap from “SIPs are effective” to “SIPs always guarantee positive returns” is where myth takes over.
The Origins of the Myth
- Mutual Fund Marketing
Fund houses, seeking steady inflows, emphasize the safety and inevitability of SIP returns. - Regulatory Campaigns
Slogans like “Mutual Funds Sahi Hai” created a culture of trust, often oversimplifying the risks. - Survivorship Bias
Data shared in promotions often highlight successful funds and favorable time periods, ignoring underperformers. - Back-Testing
Historical data shows that over 10–15 years, equity indices tend to rise. But this assumes the future will mimic the past.
Why SIPs Don’t Always Give Positive Returns
1. Market Cycles Can Be Long
Equity markets can stagnate or decline for extended periods.
- Example: Japan’s Nikkei index peaked in 1989 and took decades to recover.
- SIPs made during such periods may yield poor or negative returns for 15–20 years.
2. Fund Selection Matters
Not all mutual funds mirror the index. Some underperform for years due to poor management or wrong strategy. SIPs in such funds may never deliver meaningful returns.
3. Timing Risk Exists Even in SIPs
Starting SIPs just before long bear markets can result in years of losses. Averaging reduces timing risk but doesn’t eliminate it.
4. Inflation-Adjusted Returns May Be Negative
Even if SIPs show nominal gains, inflation and taxes can wipe out real purchasing power.
5. Liquidity and Behavioral Risks
Investors often withdraw early during downturns, locking in losses. SIPs demand patience that many fail to maintain.
6. Credit and Debt Funds Risk
SIPs are not limited to equity funds. Debt mutual funds with SIPs can suffer defaults, interest rate risks, or credit downgrades.
Case Studies
The 2008 Global Financial Crisis
Investors who began SIPs in 2006–07 saw their portfolios plunge by 40–50%. Many panicked and exited. Those who stayed recovered, but only after years of uncertainty.
Indian Mid-Cap Funds (2018–2020)
SIPs in mid-cap schemes suffered steep drawdowns when valuations collapsed. Many investors booked losses despite the “SIP safety” narrative.
Japan’s Lost Decades
If an investor had started SIPs in Japanese equities in the early 1990s, returns would remain weak even decades later — challenging the myth of inevitable gains.
The Psychology Behind the Myth
- Optimism Bias: Investors prefer simple, positive narratives.
- Marketing Influence: “Safe wealth creation” appeals to risk-averse savers.
- Herd Behavior: Seeing peers invest through SIPs reinforces belief.
- Denial of Complexity: Few want to grapple with the uncertainty of markets.
What the Data Actually Shows
Studies of Indian equity SIPs over long horizons do reveal high probability of positive returns:
- Over 10+ years in Nifty 50 index funds, most SIPs have delivered positive returns historically.
- But this is probability, not guarantee. Outliers exist where returns are flat or negative, especially in volatile or sector-specific funds.
Globally, results are even more mixed. Equity SIPs in stagnant economies or poorly managed funds can underperform for decades.
The Risks Investors Overlook
- Concentration: Investing SIPs only in equity funds exposes portfolios to market downturns.
- Manager Risk: Active funds may fail to beat benchmarks consistently.
- Structural Risks: Debt funds can hide bad credit exposures.
- Exit Strategy: Investors rarely plan when or how to exit SIPs; timing of withdrawals affects returns.
- Overconfidence: Believing in guaranteed gains leads to underestimation of risk.
Why the Myth Persists
- Fund Houses Benefit: SIPs provide predictable cash flows to the industry.
- Advisors Benefit: Commission income depends on investor inflows.
- Investors Benefit Emotionally: The belief offers comfort, even if false.
- Regulators Prefer It: Promoting SIPs encourages long-term savings culture.
How Investors Should Think About SIPs
- SIPs Are a Tool, Not a Guarantee
They help build discipline and reduce timing risk — but do not eliminate it. - Diversification Matters
SIPs should span equity, debt, and hybrid funds to balance risk. - Time Horizon Is Crucial
Long-term horizons improve probabilities but don’t assure outcomes. - Review Regularly
Fund performance should be monitored; underperformers should be replaced. - Focus on Goals, Not Myths
SIPs should be tied to specific financial goals, not blind faith in “positive returns.”
Could SIP Myths Trigger Investor Backlash?
Yes. If markets enter a prolonged downturn, millions of SIP investors expecting guaranteed positive returns may be disillusioned. Mass redemptions could trigger fund outflows, hurting both investors and the financial system.
Conclusion
SIPs are valuable financial tools, but the idea that they always give positive returns is a myth. History shows that markets can stagnate, funds can fail, and inflation can erode gains.
Believing in guaranteed outcomes breeds complacency. Investors must recognize SIPs as disciplined strategies with high probability of success — not as sure bets.
The real formula for wealth creation is not blind faith in SIPs, but diversification, patience, and realism about risk.
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