Ever since the equity markets have been hit by volatility, the most frequently heard

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piece of advice is – invest through the systematic investment plan (SIP) for the long term. But are the returns good on such an investments?

An analysis of SIPs by Financial Chronicle shows that money put in such plans has generated better returns than most of the top equity diversified funds over the past three years.

An investor who made a lumpsum investment in equity diversified funds such as Sundaram BNP Smile Fund, ICICI Prudential Discovery Fund, Birla Sunlife Frontline Equity and HDFC Top 200 have generated returns of 17.38 per cent, 14.75 per cent, 14.88 per cent and 16.53 per cent respectively, over a three-year period. Comparatively, SIP investors earned between 28 and 31 per cent.

An investor, who opted to shell out Rs 5,000 every month, clocked returns of 31 per cent in Sundaram BNP Smile Fund, 28.54 per cent in ICICI Prudential Discovery Fund, 30.10 per cent in Birla Sunlife Frontline Equity, and 27.32 per cent in HDFC Top 200.

“The variance in the performance of SIPs and lumpsum investments is mainly due to the fact that SIP investors would have picked up additional units during the downturn. The SIP route is ideal for small investors as it makes market gyrations work for them,” said Dhirendra Kumar, chief executive officer, Value Research.

SIPs allow investors to put in money in a fund periodically and averages out the peaks and dips in the market over the long term. SIP is also known as rupee-cost averaging, where one has to invest the same amount periodically in an asset class.

Many investors who have taken the direct route of investing into the stock markets have also failed to beat SIP investment returns. The benchmark index posted a 25 per cent return in past three years on a compounded basis.

“For any long-term accumulation, SIP works the best because it is simple and tends to generate more returns and give less anxiety to investors,” Kumar said.