Same Rs 5,000 SIP. Same fund. Same 6 years. Why did one investor make Rs 1 lakh more? – Mutual Funds News

That difference may seem insignificant, but in equity investing, the point at which you start investing can have a major influence on what an investor experiences along the way because markets move through different cycles: bull runs, corrections, crashes, recoveries, and periods of prolonged volatility.

This is where SIP investing becomes particularly interesting. A SIP does not eliminate market risk, nor does it guarantee returns. Instead, it spreads investments across different market levels, allowing investors to buy more units when markets fall and fewer when valuations are higher. Over long periods, this can help smooth out the impact of market cycles. But the journey can still look very different depending on when the SIP begins.

So, what happens when you put Rs 5,000 every month into an equity mutual fund from 2011 and compare it with the same SIP started in 2016? How much would each investor have invested, what corpus could they have accumulated, and how would their annualised returns compare?

The comparison also raises a larger question for investors: Does a good SIP result depend on timing, or does staying invested through multiple market cycles ultimately matter more? The answer can offer some valuable perspective for anyone starting a SIP today and for investors wondering whether they have already missed the “right” time to begin.

Below, we have compiled a data-driven analysis taken from ACE MF, using HDFC Mid-Cap Fund – Regular Plan data as an example, focusing on how the year an investor enters a mutual fund can significantly impact their wealth creation journey.

2011 to 2016: Market performance

The 2011 correction was essentially a post-rally bear market phase, where several pressures came together. Inflation was high, so the RBI tightened monetary policy aggressively, raising the repo rate 13 times between March 2010 and January 2012.

At the same time, foreign capital flows weakened, the global environment was uncertain and the rupee came under significant pressure. The Nifty 50 fell around 24.6% in 2011, while the Nifty Midcap fell even deeper, by around 35% to 40%. The rupee depreciated against the US dollar, which added to concerns around imported inflation and the broader economic outlook.

The recovery started as the pressure on inflation and monetary policy began to ease. After the series of rate hikes, the RBI paused further repo rate increases in December 2011, signalling that the tightening cycle had reached its peak. Inflation also started moderating, while valuations had become more attractive after the correction.

The recovery began gradually in early 2012 and gained momentum through 2013 and 2014. The combination of easing inflation concerns, a stabilising policy environment and more reasonable valuations helped investor sentiment improve.

Best and worst years

For HDFC Mid Cap Fund, the annual performance shows just how sharply the experience can change from one year to another. 2011 was the weakest year, with the fund falling 18.31%, while 2014 was the strongest, delivering 76.63%.

In other words, the same fund that tested investors’ patience with a nearly 18% fall in one year went on to generate more than 76% in another. This is a good example that equity investing should not be judged by one year’s return, particularly in a mid-cap fund where market cycles can be more pronounced.

Best and worst months

At a monthly level, the volatility becomes even more visible. January 2011 was the weakest month, with the fund falling 9.81%, as high inflation, rising interest rates, RBI tightening, and foreign investor selling weighed on sentiment.

At the other end, May 2014 was the strongest month, delivering 12.39%, helped by a sharp market rally around the general election outcome, expectations of a stable and more reform-oriented government and strong foreign institutional inflows.

2016 to 2021: Market performance

The major correction in this period came in March 2020, driven by the COVID-19 pandemic, the sudden lockdowns and the resulting shock to economic activity and corporate earnings. The speed of the recovery was almost as striking as the fall.

Markets responded to aggressive monetary and fiscal support globally, while the RBI cut the repo rate between March and May 2020, alongside substantial liquidity measures. As lockdown restrictions gradually eased, economic activity began recovering and investor confidence improved. Foreign portfolio flows also returned strongly, supported by global monetary easing and fiscal stimulus.

For HDFC Mid Cap Fund, the NAV fell from 61.46 on 8 January 2018 to 36.454 on 23 March 2020, resulting in a 40.69% drawdown. The fund recovered to its earlier peak by 26 November 2020, which means the recovery from the trough took 248 days.

The important point for an investor is that the 40.69% fall did not become a permanent loss for a long-term investor. In fact, the recovery from the March 2020 low was exceptionally sharp, with the fund rising 66.31% from the trough to the recovery level.

This is precisely why stopping an SIP during a sharp correction can work against the investor. The period of maximum fear is also when the same monthly investment buys significantly more units, which can meaningfully contribute to the gains when the market recovers.

Best and worst years

The annual numbers again show how sharply the experience can change within the same fund. 2018 was the weakest year, with HDFC Mid Cap Fund declining 11.16%, while 2017 was the strongest, delivering 41.66%. After a strong 41.66% gain in 2017, the fund moved into negative territory the following year. It is a good example of why one strong or weak year should not be used to judge the long-term potential of an equity fund.

Best and worst months

At the monthly level, March 2020 was the weakest month, with HDFC Mid Cap Fund falling 27.82%, as the COVID-19 pandemic, nationwide lockdowns and fears of a severe economic slowdown triggered an unprecedented risk-off move. April 2020 was the strongest month, with a 14.77% gain, as markets began pricing in aggressive monetary and fiscal support, improving liquidity and expectations of a gradual reopening.

A 27.82% fall in one month was followed by a 14.77% rise in the very next month. This is why short-term market movements can be extremely misleading for an SIP investor. Volatility is uncomfortable, but when investments continue through the fall, the lower NAV allows more units to be accumulated before the recovery begins.

Two lump-sum investors compared

Compare two lump-sum investors:

Lump-sum Investor A invests between 2011 and 2016

Lump-sum Investor B invests between 2016 and 2021

This comparison shows how much the market cycle can influence the experience of a lump-sum investor, even when the fund remains exactly the same.

If Rs 1 lakh had been invested at the beginning of each period, the 2011 to 2016 investor would have earned an absolute return of around 160%, taking the investment to approximately Rs 2.60 lakh. The investor entering in 2016 and staying invested until 2021 would have earned around 137%, taking the same Rs 1 lakh to approximately Rs 2.37 lakh.

Source: ACE MF

The difference is meaningful, but it also highlights an important point that the starting year can change the outcome of a lump sum investment because different investors experience different market cycles.

This is precisely why comparing returns only from a particular starting date can sometimes give a misleading impression of the fund.

“For an SIP investor, however, the experience is different because money is invested across both high and low market phases. Therefore, the objective should not be to predict the best year to enter, but to remain invested long enough for the different market cycles to average out,” said Arjun Guha Thakurta, Executive Director at Anand Rathi Wealth.

Low NAV vs high NAV

A low NAV should not automatically be considered cheap and a high NAV should not automatically be considered expensive. But for an SIP investor, the difference in the number of units accumulated at different NAV levels is important.

When the NAV is lower, the same monthly investment buys more units, while a higher NAV buys fewer units. Over time, as the investor continues investing through different market phases, these purchases average out the cost.

The HDFC Mid Cap Fund SIP data illustrates this well. An investor who started in January 2011 earned an XIRR of 19.28%, while an investor who started five years later in January 2016 earned 19.20%, despite entering at very different points in the market cycle.

The message is therefore not to wait for a low NAV. It is to remain invested through both high and low NAVs, because the benefit of SIP comes from averaging across market cycles rather than trying to identify the perfect entry point.

Starting point effect

The starting point can change the experience significantly because an investor does not invest in a fund in isolation. The investor enters at a particular stage of the market cycle, at a particular valuation, and then experiences whatever happens next.

Source: ACE MF

HDFC Mid Cap Fund is a good example. An investor entering around 2011 had to first go through a 22.12% drawdown, while someone entering around the later period had to face a much sharper 40.69% drawdown during the COVID crash. Yet both periods were eventually followed by strong recoveries.

This is why the first few years can sometimes create a very different impression of the same fund. A strong starting market can make returns look impressive initially, while an entry just before a correction can test patience even if the underlying fund remains fundamentally sound.

“For a long-term SIP investor, however, this starting point effect becomes much less important. The investor is not putting all the money in at one valuation. Every instalment buys units at a different NAV, including during periods when markets are falling. That is the real benefit of rupee cost averaging,” Thakurta commented.

“The starting year may change the initial experience, but staying invested across market cycles is what ultimately matters for wealth creation. This is also why muted or negative returns in the early years should not automatically become a reason to stop an SIP. The very period that feels uncomfortable can be the period when more units are accumulated, which can work in the investor’s favour when the cycle turns,” Thakurta further added.

Investor takeaway

The broader message is that investors should look beyond short-term returns and pay attention to market cycles, time horizon and the impact of the starting point on outcomes.

The starting year can shape the early experience, sharper drawdowns in one case, stronger initial rallies in another, but for a long-term SIP investor, staying invested through both matters more than getting the entry point right. 

Every instalment buys units at a different NAV, and that is what allows rupee cost averaging to narrow the gap between an investor who started in 2011 and one who started five years later, in 2016.

Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions. 

Every financial journey has a turning point. What’s yours?

Financial Express is launching a new series highlighting real experiences with money, investments, and the taxman. Did a sudden tax rule catch you off guard? Did a piece of financial advice change your life? Your story could provide invaluable, practical lessons for thousands of fellow taxpayers. Share your experience with us. We respect your privacy: no stories will be featured without a direct conversation and your full consent. Thank you.