Why your SIP feels like it isn’t working

You started a SIP three years ago. You have put in ₹3.6 lakh, and the portfolio shows ₹3.8 lakh. Two hundred thousand rupees of effort has produced twenty thousand rupees of gain, and the whole exercise begins to feel like a very slow savings account. This is the point at which most people stop — and it is almost always the wrong moment to do it.

Nothing has gone wrong. What you are looking at is the ordinary shape of compounding in its early years, made worse by the fact that a SIP's average holding period is much shorter than its total duration. Understanding why makes the next seven years considerably easier to sit through.

Your money is younger than your SIP

Here is the part that surprises people. In a SIP running for three years, the first instalment has been invested for thirty-six months, but the most recent one has been invested for a single month. The average instalment has only been working for about eighteen months.

So a three-year-old SIP is not a three-year investment. It is a collection of thirty-six investments whose average age is a year and a half. Judging it by a three-year return figure is simply the wrong measurement.

A SIP does not become a long-term investment on the day you start it. It becomes one roughly halfway through.

Where the growth actually arrives

Take a ₹10,000 monthly SIP at an assumed 12% a year — an assumption, not a promise. The arithmetic breaks down roughly like this:

Notice what happens between year fifteen and year twenty. You contribute another ₹6 lakh, and the corpus grows by roughly ₹49 lakh. In the last five years of a twenty-year SIP, growth does about eight times as much work as your own contributions.

The uncomfortable corollary: that final stretch only exists if you survived the first one. Every year you stop and restart resets your position on this curve.

The three years that feel worst

In our experience with client portfolios, the danger zone is years two to four. The novelty has worn off, the numbers are unimpressive, and the SIP has become a line item on a bank statement that somebody eventually questions. It is also, almost invariably, the period during which a friend mentions a stock that doubled.

Three things help:

• Rename the SIP after the goal. “Ananya — college 2038” is much harder to cancel than “equity fund SIP”. This sounds trivial. It is not.
• Stop checking monthly. Monthly checking shows you volatility, which is noise at this horizon. A quarterly or half-yearly review is enough, and it is what we do with clients.
• Step it up annually. A 10% annual increase, timed to your appraisal, roughly doubles the eventual corpus on a twenty-year SIP. Raising the amount is also psychologically the opposite of quitting.

When stopping is the right answer

To be fair to the instinct: there are legitimate reasons to stop.

If the goal has come within three years, equity exposure should be reducing, not continuing. If your emergency fund is empty and the SIP is being funded by a credit card, fix that first. If the scheme has drifted from its stated mandate or has persistently trailed its category for several years, a switch may be warranted — though that is a change of vehicle, not of destination.

What is not a good reason: the market has fallen. A falling market is the phase in which your fixed instalment buys more units, and those cheaply-bought units do a disproportionate share of the lifting when the market recovers. Stopping then is the one decision that reliably converts a temporary decline into a permanent loss.

What to do this week

Open the SIP calculator and run your own numbers twice — once at your current amount and once with a 10% annual step-up. Then set the horizon to the year your goal actually falls due rather than to a round number. Most people find the second chart is the argument they needed.

And if the exercise raises a question about your own portfolio, write to us. A second opinion costs nothing.