Inspired by the bull run in Indian equities, many retail investors these days toil up a mountain in regularly investing in individual stocks via stock SIPs to beat Mr. Market. But turns out that stock SIPs, based on the rupee cost averaging mantra, are much ado about nothing.

Just 55-59 per cent of monthly stock SIPs done over last 1-, 3- and 5-year periods beat the returns notched up by Sensex-based exchange traded funds. Many continue to be enthralled by stock SIPs that have doubled or trebled money. But the not-so-high percentage of market-beating stock SIPs yet again proves how difficult it is for investors to beat a low-cost and simple investment solution such as Sensex ETF. We have considered ETFs as a comparison as this too requires a demat account and SIPs are not automated. Here are key takeaways from a bl.portfolio  study.

Higher the risk, greater the chance

Our stock SIP analysis covers adjusted prices provided by Capitaline for 872 stocks from BSE Allcap index (100 large-caps, 150 mid-caps, 250 small-caps and 372 micro-caps) for 1-, 3- and 5-year periods ended June 16, 2023. All returns are on absolute basis.

59 per cent stock SIPs outperformed Sensex ETF’s gains in 1-year period (up 8 per cent). 56 per cent of stock SIPs outshined Sensex ETF in 3-year period (up 20 per cent) and 55 per cent of stock SIPs beat 30-stock Sensex ETF in 5-year period (up 37 per cent).

Individually, 40-53 per cent large-cap stock SIPs, 47-59 per cent mid-cap stock SIPs, 55-63 per cent small-cap stock SIPs and 58-64 per cent micro-cap stock SIPs beat Sensex ETF across various time periods. Only as investors moved up the risk curve (large-cap to micro-cap), there is a slight increase in the possibility of beating market.

Positive vs negative returns  

Stock SIPs have helped generate good returns if you bought low and sold them high. About 280-410 stock SIPs gained between 11 and 50 per cent in 1-, 3- and 5-year periods, which is about 30-45 per cent share of overall stock SIPs.

Bigger returns such as more than 50 per cent or 100 per cent are low in large-cap and mid-cap space, but appear relatively more frequently in the more riskier small-cap and micro-cap space. Overall, just 1 per cent of stock SIPs such as Jindal Saw, Nucleus Software, and Titagarh Rail, more than doubled in one year. Longer tenures do brighten the chance of getting more bang for the buck. For instance, around 20 per cent of stock SIPs more than doubled in 5 years.

On the other hand, over 200 stock SIPs such as Infosys, Wipro and ACC, in 1-year and 3-year period clocked negative returns; the number went down to 141, including the likes of Bandhan Bank and Biocon, in 5-year period.

SIP vs. lumpsum

One of the reasons small investors prefer stock SIPs is the lack of capital to buy their favourite stock. For instance, not everyone can buy scrips such as MRF, Honeywell Auto, Page Industries, 3M India or Shree Cement with a few thousand rupees, not today or even some years ago.

But if investors had the capital, lumpsum may be more rewarding in shorter time frames, data suggest. One-year SIP in MRF stock made 17 per cent return but lumpsum gain was miles ahead at 49 per cent. In fact, only in 22 per cent of all stock SIPs, including in the likes of MRPL and CPCL, did SIP generate more return than lumpsum in 1-year period.

Only when the stock SIP tenure is higher, say 5 years, do stock SIPs come close to beating respective lumpsum gains. As much as 43 per cent of stock SIPs performed better than their lumpsum done five years ago. Notable examples are Force Motors, Indian Bank, Pennar Industries, Raymond, GE T&D India and Atul Auto.