Even as the broader market is yet to regain its year-ago value, the systematic investment plan (SIP) train marches on. Monthly SIP inflows are about to touch the historic Rs.30,000 crore mark, up from Rs.25,323 crore worth of inflows in October 2024, as per latest data from the Association of Mutual Funds in India (AMFI), the mutual fund industry’s trade body. SIP assets now account for nearly 20% of the industry’s total assets.
Indian retail investors have made it an unshakeable habit—as customary as the monthly trip to the neighbourhood shopping mall. The continued faith in this investing tool is evident in the persistent inflows.
Most of the credit goes to the messaging from the Indian mutual fund industry, distributors, and financial advisers on the merits of consistent investing. While that has inculcated discipline in investing, it has also led many investors—especially firsttimers and those who haven’t seen a bear market—to believe that you can never lose money when investing through SIPs. Some investors have come to believe it is a magic pill that helps avoid hangover from market excesses and assures healthy outcomes.
Nehal Mota, Co-Founder & CEO, Finnovate, says, “For many, SIPs are the default way to invest in equity markets. But with this rise, a few misconceptions have also grown silently. Some investors now believe SIPs are safer, or they guarantee long-term success. The truth is more nuanced.” Are SIPs making investors a tad too complacent?
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Behaviour is key The perceived safety in SIP is relative to the risk associated with lump-sum investments. This is the risk that a chunk of your money will be deployed at or near market peaks. “The most slippery element of timing the market is largely taken care of through an SIP. While a lump-sum investment always carries the risk of buying near the market peak, an SIP schedule cuts through intermittent peaks and troughs, which effectively averages the cost of acquisition of investment units,” outlines Nirav Karkera, Head of Research, Fisdom.
This is the entire premise of taking the SIP route: automated commitments mean investors don’t have to grapple with their worst emotional impulses during volatile periods. This behavioural stability often matters more than the mathematical outcome, argues Mota, citing the pandemic-hit year 2020, which saw one of the sharpest and fastest market crashes in recent history. It offers a fair comparison of lump sum versus SIP behaviour under stress.
Consider this: investor A invests Rs.6 lakh as a lump sum on 1 January 2020, when the NIFTY 50 index fund’s net asset value (NAV) is Rs.118.1. Investor B invests the same amount through a monthly SIP of Rs.50,000 from January to December 2020, buying units in a highly volatRs.6 lakh fall to nearly Rs.4 lakh within weeks, a psychological jolt that, for many, triggers fear, regret, or the temptation to exit. The SIP investor, however, experienced the same fall very differently: April became the most valuable month in terms of units accumulated because the SIP bought more at the year’s lowest NAV.
By the end of the calendar year, both investors had invested the same total amount: Rs.6 lakh. But when we measure the value on 1 January 2021, with the NAV back up to Rs.136.26, their outcomes are no longer identical. Investor A’s lump sum grows to about Rs.6.92 lakh, reflecting the market’s recovery but still anchored to the January 2020 entry price. Investor B’s SIP, on the other hand, benefits from buying across the entire range of 2020’s volatility—including the deepest lows during the panic months—and ends the year at roughly Rs.7.7 lakh. The gap is not due to better timing, but a lower average purchase cost. By steadily investing through the downturn, the SIP turned the crash into an advantage rather than a setback.
“This is the behavioural edge of SIPs: they convert volatility into an ally rather than a threat. The SIP investor’s experience is smoother, the regret is lower, and the probability of staying invested is much higher,” Mota remarks.
But this relative safety of SIP is tied to your own behavioural tendencies. This argument falls apart if you succumb to the same impulses. Rajani Tandale, Senior Vice President—Mutual Fund, 1 Finance, says, “SIPs are considered safer only when investors follow the right discipline. For those who enter SIPs when markets are high and stop or redeem when markets correct, SIPs can become counterproductive.”
A 2022 Axis Mutual Fund study found a significant gap between investor returns and fund returns, even when investing via SIP. For SIPs in equity funds run between 2009 and 2022, investors earned 3.9% less than the corresponding fund return. Further, a study by the Securities and Exchange Board of India on redemptions/switches found that only about 3% of investors hold mutual fund units for more than five years. “This clearly reflects a misalignment between investor behaviour and the true purpose of SIP investing. For investors who fail to grasp this, SIPs may not turn out to be the ‘safer’ option they expect,” Tandale asserts.
Evidence shows that SIP investors are usually rewarded for persistence over longer time frames. A March 2025 joint study by ET Wealth-CRISIL on SIPs across various seven equity fund categories that have run for the past 15 years shows that the chances of a positive return heavily improve after crossing the seven-year threshold. Further, the study found that it takes at l
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