Doing SIPs for 10 years? You could still lose; expert explains why timing matters

Less than 5% of mutual fund investors in India continue their investments beyond three years, a stark statistic that reveals an uncomfortable truth about the state of long-term investing in the country. Akshat Shrivastava, founder and CEO of Wisdom Hatch, stated that the common narrative around mutual funds and SIPs (Systematic Investment Plans) paints a rosy picture of wealth creation over time.

Shrivastava pointed out that long-term investing is often a luxury only the financially secure can afford. “You can only invest (truly) long-term when you don’t need to break your corpus for school fees or emergency hospital bills,” he noted in a post on X. For most middle-class investors, liquidity needs take precedence over compounding, forcing premature redemptions.

Adding further perspective, the observer gave details on market phases that significantly impact SIP outcomes:

Phase 1 (2000–2010): A structural bull run saw the Indian index rise 5.5X—from 1,000 to roughly 5,500. Investors who entered during this decade saw “unreal” returns.

Phase 2 (2011–2019): A far less generous market cycle, offering about 2X growth in 8 years. SIP investors during this period earned modest returns, with average CAGR hovering around 9–10%.

Phase 3 (2020–2025): Following the COVID dip, markets tripled. SIPs starting from this period saw significantly better outcomes, highlighting the importance of timing.

What does this mean?

Long-term investing requires financial cushion: Less than 5% of investors stay invested in mutual funds beyond 3 years because most people can’t afford to keep their money locked in—life expenses like school fees or medical bills often force early withdrawals. Long-term investing is easier for those with surplus capital.

SIP returns heavily depend on market phases: SIPs done during 2000–2010 delivered stellar returns due to a structural bull run (5.5X gains), while SIPs in 2011–2019 yielded average returns (~9–10% CAGR). SIPs started in 2020 saw strong gains due to post-COVID market recovery. Timing matters more than duration.

Valuations matter more than timeframes: Blanket advice like doing SIPs for 5, 10, or 20 years can be misleading. Investors should consider market valuations before starting SIPs instead of blindly committing. Understanding market cycles and valuation levels is key to building real wealth.

The takeaway 

Even a 10-year SIP doesn’t guarantee spectacular returns if started during a stagnant market phase. Someone who began SIPs in 2014 may find their portfolio lagging behind someone who started in 2020, despite investing for a longer duration.

Contrary to popular belief, the story argues, blindly committing to 5, 10, or 20-year SIPs without considering market valuations is risky. “Don’t be a blind investor. Valuations matter,” it warns.

In essence, while SIPs remain a disciplined route to investing, timing, valuation awareness, and financial stability are critical to unlocking their full potential. For retail investors, that means education must go hand-in-hand with execution.