Stay on course! Avoid changing lanes frequently in SIP, says WhiteOak Capital Mutual Fund
It’s better to continue with the same index rather than annually switching a Systematic Investment Plan (SIP) to the previous year's best-performing index, revealed a study conducted by WhiteOak Capital Mutual Fund.
The study analysed the return (XIRR) of SIPs by comparing continuous investment in one index with SIPs that switch to the last year's best-performing index, over a period from FY06 to FY24.
The study observed that over the past 19 years, overall, SIPs in the Small Cap Index and Mid Cap Index have outperformed those in the Large Cap Index (as of April 1, 2024). However, during this period, SIPs in the Large Cap segment outperformed seven times, while SIPs in the Small Cap and Mid Cap segment each outperformed six times.
Investors frequently based their decisions on the performance of index in the previous year. However, changing the lane and switching to a better-performing index every year does not often result in better investment performance, it cautioned.
The study observed that long-term investment continued in the same mid-cap or small-cap index, since FY06, had higher XIRR as against annually switching to the best-performing index of the previous year.
An investor who had continued SIP with the Mid Cap Index only without changing to the best-performing index of the previous year would have generated an XIRR of 18.1 percent (as of 1 April 2024) as against 15.5 percent if annually changed to the best-performing index of the previous year. The table here shows returns when continued with one index, as against changing regularly every year for the last nineteen financial years, it mentioned.
Similarly, a SIP started in the Small Cap Index would have generated an XIRR of 16.0 percent (as of 1 April 2024),
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